Mortgage Activity Dips, But Interest Rates Are Still At Record Lows

Mortgage rates are still at all-time lows. According to the latest data from Freddie Mac, the average interest rate on a 30-year mortgage is just 3.13%—holding steady from last week and the lowest rate on record in at least 49 years.

Rates on 15-year loans have also bottomed out. Those clocked in at an average rate of just 2.59% this week.

Despite the bargain-basement rates, though, mortgage activity actually declined in recent days. Data from the Mortgage Bankers Association shows purchase loan applications down 3% for the week, while refinances dropped 12%. It was the lowest level of refinance activity in three weeks.

Fortunately, it doesn’t appear the slide is an ominous trend just yet. According to Joel Kan, MBA’s vice president of economist and industry forecasting, it’s more likely a side effect of tightening housing supply.

“One factor that may potentially crimp growth in the months ahead is that the release of pent-up demand from earlier this spring is clashing with the tight supply of new and existing homes on the market,” Kan says. “Additional housing inventory is needed to give buyers more options and to keep home prices from rising too fast.”

Short supply or not, the housing market is still going strong despite it all. Prior to this week, purchase loans had risen for five straight weeks. In May alone, applications to purchase a home jumped 26%. 

According to Sam Khater, chief economist for Freddie Mac, it’s a sign this economic downturn is a little different than the last one—at least when it comes to housing.

“After the Great Recession, it took more than 10 years for purchase demand to rebound to pre-recession levels,” Khater says. “But in this crisis, it took less than 10 weeks.”

To be fair, refinancing is going strong, too. Refinance applications were 76% higher than last year’s numbers this week, and MBA projects over $1.3 trillion in refinance originations by the end of this year. Freddie Mac predicts even higher numbers.

“The low mortgage rate environment led to a surge in refinance mortgage originations in the first half of 2020,” the company’s latest housing forecast reads. “As mortgage rates hold steady at all-time lows, we will likely see refinance originations stay at high levels for the full year.”