A Look at New Home Mortgage Applications in June 20214 min read
Since what many now call an economic hard-reset in February 2020, the economy has made a slow but steady climb to recovery. The sudden spike in unemployment benefits claims hit record highs when the COVID-19 pandemic was officially recognized as a health crisis. However, at any other point in history, the unemployment levels and economic disruption would have been significantly more devastating. It was only thanks to the extensive penetration and expansion by services like Spectrum Internet and existing cloud platforms that businesses managed to continue working.
Mortgage Application Trends in June 2021
While business managers and leaders initially had reservations about working from home, the results quickly proved them wrong. Businesses didn’t just manage to survive the pandemic, they went through a fundamental shift in workplace philosophy and culture. But as a result, they were able to keep operations running and generate revenues instead of relying on dwindling cash reserves. And by extension, their employees were still able to earn income instead of relying on unemployment benefits.
Reduced Mortgage and Refinance Rates
With policy-level decisions aimed at reviving a shrinking economy and injecting more cash into circulation, the government naturally chose to make borrowing cheaper. That involves, among other things, reducing the interest on bank borrowings. Dropping the interest rates to the lowest they have been in years may not have been part of the United States economic policy prior to the 2020 pandemic, but it was a wise reactionary measure nonetheless. From seeing shocking record lows in February 2020, the mortgage industry saw varying degrees of comparative success in the months since.
A lower interest rate is precisely the kind of motivator that encourages people to risk a long-term financial liability. The savings in both interest rates and real income have influenced American citizens into taking advantage of the lowered borrowing rates. In an unprecedented health crisis and the related economic fallout, this may well have been one of the few workable options left to policymakers. While the number of applications has risen and fallen with changes in conditions, let’s examine the first few weeks of June 2021.
Application Volume Dropped in Early-June 2021
The first week of June 2021 saw a steep decline in mortgage refinancing and new mortgage applications. According to Reuters, the application volume dropped to its lowest levels since the start of the pandemic. The seasonally adjusted Mortgage Bankers Association market index declined sharply to just over 3%. This reflected a decrease of over 5% in refinancing application volume. Compared to the same week in June 2020, the 27% fall in refinancing applications in 2021 was disturbing.
However, this may not be as serious as one would immediately think. The week in question was shortened by the Memorial Day holiday. The favorable interest rates and a recovering economy are continuing to create growth in home-price. With employment rates in the overall job market also showing marked improvement, many demographics are in a more favorable position to apply for a new home mortgage or a refinancing arrangement. The growth in demand for housing is actually currently ahead of the available supply.
Application Numbers Rebounded in Mid-June 2021
Of course, when demand exceeds supply, the most obvious economic implication is an increase in prices. This has resulted in a surge in home prices, putting off many potential buyers as U.S. consumers are already facing uncertainty and may not view now as the best time to take on a major financial responsibility. Remember, a conventional mortgage agreement typically lasts for 30 years.
However, many mortgage lenders and realtors remain confident that a resurging economy will create a balancing mechanism of its own. In fact, according to Reuters just a week later, there was another uptick in home mortgage applications. The general view is that a shortened work week and bottlenecks in the supply of homes contributed to the decrease in purchase activity. However, it has rebounded significantly since.
The week ended June 11th saw an increase of 4.2% in the MBA’s market index. According to Reuters, this reflects a 5.5% growth in the volume of refinancing applications. The purchase activity is still nowhere near pre-pandemic levels. However, an increase in government purchase applications is continuing to drive growth in the mortgage industry, following a growth in the size and volumes of financial loans.
It is important to note that at the time of this blog, average interest rates for a conventional home mortgage have continued to decrease for 3 straight weeks. At 3.11, the average contract rate is at its lowest yet. Since May 2021, mortgage interests have continued to decline, so it is a fair expectation that the corresponding increase in mortgage applications won’t be much longer in coming.