Mortgage Applications (Feb.) - Capital Economics
US Housing

Mortgage Applications (Feb.)

US Housing Market Data Response
Written by Matthew Pointon
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The mortgage market came off the boil in February, with home purchase applications recording their largest month-on-month decline since the height of the pandemic last April. A rise in mortgage interest rates to an eight-month high is partly to blame, but demand is also faltering in the face of record low inventory and a surge in house prices. With rates set to rise further over the year, home purchase demand will continue to fall back toward its pre-COVID level.

Higher mortgage rates and lean inventory hit housing demand

  • The mortgage market came off the boil in February, with home purchase applications recording their largest month-on-month decline since the height of the pandemic last April. A rise in mortgage interest rates to an eight-month high is partly to blame, but demand is also faltering in the face of record low inventory and a surge in house prices. With rates set to rise further over the year, home purchase demand will continue to fall back toward its pre-COVID level.
  • Total mortgage applications dropped 10.1% m/m in February, with home purchase and refinance seeing falls of 15.0% m/m and 8.9% m/m respectively. That’s the largest decline in purchase applications since April last year when the country started to shut down. On the back of a jump in 10-year Treasury yields, the 30-year mortgage rate averaged 3.06% in February, up from 2.92% in January, and ended the month at an eight-month high of 3.23%.
  • Given the many other factors that can impact housing demand, the short-term relationship between mortgage interest rates and home purchase demand is fairly weak. Indeed, when rates start to rise it is not uncommon to see demand pick-up as buyers rush to secure a mortgage before they get more expensive. But, if anything, the latest drop in applications looks large compared to the rise in interest rates. (See Chart 1.) That implies other factors are weighing on demand, including already stretched affordability and a record low number of homes for sale.
  • We expect mortgage rates will continue to rise, to around 3.3% by the end of the year. At the same time, we doubt inventory will see much improvement and, while house price growth will slow, outright falls in values are unlikely. Accordingly, home purchase applications are set to ease further over the year.

Chart 1: Mortgage Applications for Home Purchase & 30-Year Fixed Rate

Source: MBA

Table 1: Mortgage Applications (Calendar Month Averages)

Feb-20

Mar

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-21

Feb

All Applications (% m/m)

7.5

41.3

-22.8

-1.9

7.7

3.2

-1.9

-2.2

3.4

4.6

-0.6

12.8

-10.1

For Home Purchase (% m/m)

-11.2

-5.3

-22.0

37.3

16.3

-1.4

-0.3

3.5

-4.4

2.7

2.4

5.5

-15.0

For Refinancing (% m/m)

19.6

66.8

-22.8

-13.8

2.9

5.6

-2.9

-5.3

7.9

6.4

0.3

14.5

-8.9

30-Year Mortgage Rate (%)

3.70

3.63

3.44

3.41

3.32

3.20

3.10

3.06

3.01

2.95

2.88

2.92

3.06

Source: MBA


Matthew Pointon, Senior Property Economist, matthew.pointon@capitaleconomics.com