Mortgage Applications (Mar.) - Capital Economics
US Housing

Mortgage Applications (Mar.)

US Housing Market Data Response
Written by Matthew Pointon
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Home purchase mortgage applications edged out a small gain in March but, even as the economy reopens, we doubt that is a sign that home demand will see additional gains this year. Record low inventory will discourage buyers, and mortgage rates are set to rise further over the year. Coupled with recent house price growth of over 10% y/y, that will stretch affordability and constrain home demand.

Record low inventory and stretched affordability to weigh on home demand

  • Home purchase mortgage applications edged out a small gain in March but, even as the economy reopens, we doubt that is a sign that home demand will see additional gains this year. Record low inventory will discourage buyers, and mortgage rates are set to rise further over the year. Coupled with recent house price growth of over 10% y/y, that will stretch affordability and constrain home demand.
  • Total mortgage applications declined for the second month in a row in March, with the dip driven entirely by a 19% m/m fall in refinancing activity. Demand for refinances is now down 35% compared to late January. Given the rise in mortgage rates, to an average of 3.32% in March from 3.06% in February, the fall in refinancing activity is not a surprise. After all, mortgage rates have increased 50bps since the start of the year, reducing the attractiveness of seeking a new deal for many borrowers. (See Chart 1.)
  • Home purchase applications edged out a small gain of 1.7% m/m, although that wasn’t enough to offset the drop of 15% m/m recorded in February. Purchase demand is less sensitive to interest rate movements than refinancing. Indeed, in the early stages of an interest rate tightening cycle demand can be given a boost from buyers rushing to secure a deal before rates increase further.
  • That said, with inventory at record lows and affordability increasingly stretched thanks to rapid house price gains, we expect home purchase demand will trend down this year. Mortgage rates are also set for further gains. While the recent stability in the 10-year yield suggests mortgage rates will move sideways over the next couple of weeks, we expect they will soon resume their upward trend, with the 30-year rate ending the year at around 4.0%.

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

Sources: MBA, Capital Economics

Table 1: Mortgage Applications (Calendar Month Averages)

Mar-20

Apr

May

Jun

Jul

Aug

Sep

Oct

Nov

Dec

Jan-21

Feb

Mar

All Applications (% m/m)

41.3

-22.8

-1.9

7.7

3.2

-1.9

-2.2

3.4

4.6

-0.6

12.8

-10.1

-12.9

For Home Purchase (% m/m)

-5.3

-22.0

37.3

16.3

-1.4

-0.3

3.5

-4.4

2.7

2.4

5.5

-15.0

1.7

For Refinancing (% m/m)

66.8

-22.8

-13.8

2.9

5.6

-2.9

-5.3

7.9

6.4

0.3

14.5

-8.9

-19.0

30-Year Mortgage Rate (%)

3.63

3.44

3.41

3.32

3.20

3.10

3.06

3.01

2.95

2.88

2.92

3.06

3.32

Source: MBA


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