Mortgage Application Rate at a Six-Week Low As Mortgage Rates Rise and Purchasers Wait for Further Home Price Drops

Mortgage Application Rate at a Six-Week Low As Mortgage Rates Rise and Purchasers Wait for Further Home Price Drops

With fewer people applying for mortgages lately, what does it mean for the housing industry? What other factors are contributing to the declining number of home buyers?

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Fewer people are applying for mortgages these days.  In the week that ended on March 25, there was a 7.5 percent decrease in loan applications with application requests dropping back to the lowest levels since February 11, as mortgage rates rose.

But some analysts are saying that it’s not only the increasing mortgage rates that are to blame for the lack of interested borrowers. Some analysts believe that homeowners are holding out for home prices to fall even further from where they are right now, which could entice potential buyers who are looking for a great deal on a new home.

According to Celia Chen, an economist at Moody’s Analytics Inc., people are less likely to invest their money in a home if they think the housing prices have not hit the bottom yet. As the demand for homes weaken across the country, the home prices will weaken as well, making it more difficult for troubled homeowners to find buyers for their home.

In January of this year, prices for real estate dropped to a one-year low.  In February, the number of homes purchased hit at a record low. Slower sales market for homes across the country are spreading across the country.

However, that’s not to say that the increased mortgage rates aren’t playing a role in the slowing real estate market. Last week, the average interest rate for a 30-year fixed rate loan went up from 4.80 the previous week to 4.92 percent. For a 15-year fixed rate loan, the average rate went from 4.02 to 4.16 in the matter of a week. And it’s not only home buyers who are putting on the brakes. Current homeowners who are looking to refinance are also becoming fewer and fewer. In recent weeks, the percent applying for a mortgage refinance has dropped from 66.4 percent to 64.3 percent of all mortgage applicants.

Those in the real estate and mortgage industry aren't giving up hope. They are anticipating the spring selling season of 2011 to see what the market holds in terms of buyers. Nobody is sure about how this busiest selling time of the year is going to play out yet. Is it going to be the start of a massive recovery for the housing industry and the economy in general? Or is it going to fizzle out and require everybody to be more patient while waiting for an actual recovery?

How do you think this season is going to compare?  

For current mortgage rates in your area, click here.

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