Tight Supply Overshadows Benefits of Lower Mortgage Rates

Last week's drop in mortgage rates did not result in higher demand for home loans due to the lack of supply in the housing market. Mortgage applications to purchase a home decreased by 4%, and new listings were down 20% year over year in March. Demand for lower-income borrower loans declined more than those for conventional loans, and applications to refinance a home loan dropped by 5%.

Although the mortgage rate for conforming balance loans declined, the rate for jumbo loans increased, suggesting that banks may be tightening credit. The current state of the housing market, particularly the lack of supply, outweighs the benefits of lower mortgage rates. Although there is strong demand from first-time homebuyers, affordability remains a challenge, and rates are higher than they were last year, leaving few borrowers who can benefit from a refinance.

Mike Fratantoni, the MBA's chief economist, said, "Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season." Total inventory was about half of what it was in March 2019, pre-Covid pandemic, and there has been relative weakness at the high end of the housing market in recent months. Banks may be preserving balance sheet capacity as deposit balances have declined, given the divergence in rates between conforming balance loans and jumbo loans. While millennials are hitting their peak buying age, affordability remains a challenge.

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Source: https://www.cnbc.com/2023/04/05/lack-of-home-listings-is-taking-a-toll-on-mortgage-demand.html