First-Time Buyers May Pull Back as FHA Rates Rise, Mortgage Demand Drops Slightly

July 29, 2020
Aerial view of suburban neighborhood
By Jandrie Lombard

Mortgage interest rates remain historically low, and demand remains high, but slight dips in mortgage applications to purchase a home may show a change in first-time buyer demand. Total mortgage application volume fell by 0.8% last week compared to the previous week, and mortgage applications were 2% lower, according to CNBC. This could be a result of the increasing average rate for FHA-backed 30-year fixed-rate mortgages, which grew by 0.14%. CNBC says these federally backed loans are most popular with first-time buyers because of the lower down payments required. Buyers with FHA loans made up 35% of closings in June—will the increasing rates threaten the housing market’s recovery?

Mortgage applications to purchase a home were 2% lower last week than the previous week but a strong 21% higher annually. Homebuyers are making up for lost time last spring and appear to have a new urgency to move due to the Covid-19 pandemic. Buyer demand for new construction is especially strong, as the supply of existing homes for sale continues to shrink.

Applications to refinance a home loan were basically flat, falling 0.4% for the week but were 121% higher than a year ago. Refinance demand has been riding high because mortgage rates keep falling. Even small rate moves open the field to more borrowers who can benefit and save much-needed cash on their monthly payments. 

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