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Home loans are getting bigger, even as application volume drops

Threat of a second wave of Covid and low supply drives down demand for purchase loans

The number of prospective homebuyers applying for mortgages fell again, but those still in the market are asking for larger loans
The number of prospective homebuyers applying for mortgages fell again, but those still in the market are asking for larger loans (iStock)

Homebuying demand is dropping off, but those still in the market are applying for larger loans, according to a weekly report tracking mortgage applications.

An index that follows applications to buy single-family homes fell by 1 percent, seasonally adjusted, compared to the prior week. It marks the second week in a row that the Mortgage Bankers Association’s survey, known as the purchase index, declined.

Joel Kan, MBA’s executive at the helm of industry forecasting, called the purchase index’s two-week descent “potentially a signal that pent-up demand is starting to wane.”

He also said that low housing supply may be limiting prospective buyers’ choices.

“The average purchase application loan size increased to a record high in our survey — more proof that tight inventory conditions are leading to faster price growth,” he said in a statement.

The average loan size for a purchase mortgage was $360,300 last week. The prior week the average loan application was $348,500.

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The 30-year fixed mortgage rate remained at a record low of 3.29 percent for loans of less than $510,400. Jumbo rates fell 3 basis points to 3.59 percent.

Kan said that rates are falling as “investors are contemplating the risks of the recent resurgence of Covid-19 cases to the labor market and economy.”

Refinancing applications also declined last week. MBA’s refinance index dropped 2 percent week over week, in spite of remaining 74 percent higher than the final week of June 2019.

MBA’s overall index, which covers 75 percent of the residential mortgage market’s weekly applications for purchase and refinance loans, was down 1.8 percent from the previous week.

Write to Erin Hudson at ekh@therealdeal.com

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Housing MarketMortgages