Low Inventory Drives Down Mortgage Apps

Mortgage application volume declined 4.2% this week, as rates reversed course and climbed slightly. The Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending May 21, 2021 also found that the Refinance Index decreased 7% from the previous week, 9% lower than the same week just one year ago.

The refinance share of mortgage activity decreased to 61.4% of total applications from 63.3% the previous week, while the adjustable-rate mortgage (ARM) share of activity increased to 4.0% of total applications.

"Mortgage applications decreased last week as mortgage rates increased to 3.18%. Refinances dropped 7% as a result, driven by declines in both conventional and government refinance activity," said Joel Kan, MBA's Associate VP of Economic and Industry Forecasting. "Purchase applications increased for the second time in three weeks, rebounding after a rather weak April with mostly weekly declines. While purchase activity was around 4% lower than a year ago, the comparison is to last spring's large upswing in activity as pandemic-related lockdowns lifted. Demand is robust throughout the country, but homebuyers continue to be held back by the lack of homes for sale and rapidly increasing home prices."

By type, the FHA share of total application volume decreased slightly to 9.1% from 9.2% the week prior. The VA share of total apps decreased to 11.2% from 12.0% the week prior, while the USDA share of total apps remained unchanged at 0.4% from the previous week.

Contributing to the lack of homes for sale is constraints on building materials, as the National Association of Home Builders (NAHB) recently reported the price of lumber nearly tripling over the past year, forcing the price of a new single-family home to rise $35,872 on average.

The U.S. Department of Housing and Urban Development (HUD) and the U.S. Census Bureau recently found that housing starts dropped in April 2021, hitting 1.57 million units, down 9.5% from March, but still 67.3% above the April 2020 rate of 938,000 at the height of the pandemic.

“In the coming months, material cost issues, as well as problems related to labor shortages will likely remain the major concerns for builders across the country,” said LendingTree's Chief Economist Tendayi Kapfidze. “While these issues have the potential to hamper builder confidence, if rates remain low and consumer demand for new housing continues to remain strong, builder confidence will probably remain strong as well.”

With short supply already impacting weekly application volume, sellers are continuing to make dividends at the closing table, with Redfin reporting that half of the homes sold nationwide went for more than their list price during the four-week span ending May 16, a 23% rise from the same period year-over-year. Over that same four-week span, home prices hit a record high of $352,975, up 24% year-over-year, a new record. Asking prices increased to $358,975, also a record high.

Redfin is forecasting a record $2.53 trillion worth of home sales will transact in America in 2021—a 17% year-over-year gain and the largest annual increase in percentage terms since 2013.