Soaring home prices are now discouraging buyers more than low rates are motivating them.
An index tracking applications for mortgages to buy homes dropped 5 percent last week, seasonally adjusted, compared to the prior week, the Mortgage Bankers Association reported.
It’s the second time in three weeks that the metric, known as the purchase index, has dropped.
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Joel Kan, MBA’s head of industry forecasting, attributed the recent slowdown in purchase applications to rising home prices as the inventory of available homes shrinks.
“There are still signs of relative strength in the housing market as 2020 ends. However,
housing affordability will be worth monitoring next year,” said Kan in a statement.
“The lower loan size segment of the market — particularly for entry-level and first-time buyers — continues to be impacted by rapidly increasing home prices and tight inventory,” he continued.
The average interest rate for a 30-year, fixed-rate mortgage was 2.86 percent, up from 2.85 percent the week before. Jumbo rates dropped to 3.10 percent from 3.12 percent.
MBA’s refinance index, which measures home refi applications, increased 4 percent, unadjusted, from the prior week and was up 124 percent year-over-year.
Refinancing activity made up nearly three-quarters of all applications MBA recorded in its weekly survey, which has been running since 1990 and covers 75 percent of the residential mortgage market.
MBA’s index tracking all home loan applications was up only 0.8 percent, however, as the refinancing increase was offset by the 5 percent drop from would-be homebuyers.
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