Are buyers finally finding affordability?
Bank of America has reported an 80% increase in mortgage applications from January to March, surpassing typical seasonal trends, as lower long-term bond yields and rising housing inventory encouraged buyers to return to the market.
“We’re seeing a steady increase in home buying activity, and it’s beyond what we would normally see from a seasonality perspective,” Matt Vernon, head of consumer lending at the bank, said in an interview with Reuters. “We’ve seen an 80% increase in our applications from January to now, and normally we would see around the 60% increase.”
Vernon attributed the surge in applications to a drop in US 10-year bond yields, which serve as a benchmark for mortgage rates. The yield fell to about 3.6% in September, the lowest since June 2023, which subsequently pushed the 30-year mortgage rate down to 6.1% in early October. Although mortgage rates have since risen to 6.7%, they remain below the 7% level seen a year earlier, according to data from LSEG based on the Mortgage Bankers Association’s average fixed 30-year contract rate.
“We’re seeing more inventory come into the market, which ultimately leads to some stability and ultimately growth from a mortgage perspective,” Vernon noted. “With rates remaining steady or slowly declining, we are seeing more demand from a buyer perspective than we saw in the previous years.”
Reuters reported that interest in mortgage refinancing also started to rise, but a significant portion of Bank of America’s mortgage customers - approximately 80% - currently hold loans with rates below 6%. This means mortgage rates would need to decline further to encourage more refinancing activity.
Harry Chambers, an economist at Capital Economics, attributed the increased mortgage demand in part to falling mortgage rates. However, he cautioned that expectations of aggressive Federal Reserve rate cuts may be too optimistic. “We think markets are too optimistic about the Federal Reserve’s rate cuts this year and so the recent dip in mortgage rates is just a temporary respite,” Chambers told Reuters.
The rise in mortgage applications aligns with a broader trend in the housing market. US existing home sales unexpectedly increased in February as greater housing supply lured more buyers. A Reuters poll conducted in February suggested that housing affordability in the US is expected to improve modestly over the next year, driven more by interest rate adjustments than an increase in available homes.
Mortgage lender UWM Holdings has also forecast higher demand for new mortgages and refinancing. “People are feeling, in general, good about the economy. I feel like they think that things have stabilized obviously post-election,” said Alex Elezaj, chief strategy officer at UWM. “People are realizing... rates could go up, they could go down, but it’s still a good time for me to explore what my options are.”
Do you think the applications will continue to surge, and what factors will influence it? Share your thoughts below.
