Mortgage Rates Reach Highs as Demand Among Consumers Tumbles

By Thomas Price Wednesday, February 17, 2021

Mortgage contract interest rates for 30-year fixed-rate mortgages rose again this week, moving to the highest point thus far in 2021. In near-direct response to the rising rates, the demand for mortgages among consumers dropped as the volume of applications fell. Prices for homes are also on the rise, further disincentivizing purchasing amidst the economic uncertainty.

Green arrow climbing over set of house keys.

Mortgage Rates in Comparison to Demand

Over the course of the last week, the average contract interest rate for a 30-year fixed-rate mortgage increased from 2.96% to 2.98% for loans with a 20% down payment. This is officially the highest mark reached since November of 2020, making it the highest rate so far in 2021. It also is rising at the fastest pace seen in several months.

Alongside this, prices are also rising at the fastest rate in over six years. In fact, the average purchase loan size reached a whopping $412,200, a survey high. Because of these factors, alongside the ongoing economic uncertainty due to the COVID-19 pandemic, the demand for mortgages and loans for purchasing a home fell dramatically this week.

Total mortgage application volume fell by 5.1% this week, a stark drop closely tied with the rise in rates. More specifically, applications to refinance a home loan dropped by 5%, though the volume is still 51% higher than it was one year ago. At the same time, mortgage applications to actually purchase a home fell as well by 6%, but again remain 15% higher than the same week last year.

A very similar pattern played itself out last week as well, with interest rates climbing and demand dropping. This ongoing trend for both falling demand and rising rates appears to be tied closely with the dwindling price of bonds. In fact, according to Mortgage News Daily Chief Operating Officer Matthew Graham, “At a certain point market momentum becomes its own justification and bond prices snowball to lower and lower levels. When bond prices fall, rates rise.”

Possible Future for Demand and Rates

According to most experts following the matter, this trend looks fairly likely to continue for the foreseeable future as well. Alongside the lowering prices of bonds, major contributing factors such as the growing economy and inflation serve as significant reasons as well. The rates, however, remain historically lower than other times in the economic past suggesting competitive rates for consumers. Especially considering most rates were well above 3% before the COVID-19 pandemic, 2021 should continue to see a rise throughout the year. So, while the news itself appears negative for consumers, it is also a mark of economic recovery.

When commenting on the trend, Associate Vice President of the Mortgage Bankers Association, Joel Kan, said, “Expectations of faster economic growth and inflation continue to push Treasury yields and mortgage rates higher. Since hitting a survey low in December, the 30-year fixed rate has slowly risen, and last week climbed to its highest level since November 2020.”

About the Author

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Tom Price is a writer focusing on entertainment and sports features. He has a degree from NYU in English with a minor in Creative Writing. He has been previously published for Washington Square News, Dignitas, CBR, and Numbers on the Boards.

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