Mortgage applications drop by 29.4%

U.S. loan applications for buying and refinancing homes plunged last week by the most since the global financial crisis, during coronavirus shutdowns and related financial turmoil that pushed borrowing costs higher.

The Mortgage Bankers Association’s index of mortgage applications fell 29.4% in the week ended Friday, the biggest decline since early 2009. Home-purchase applications dropped by 14.6%, while refinancing applications plummeted 33.8%.

People trying to sell homes have canceled showings during the outbreak and because closings are done in person, economists expect sales will decline sharply. But the virus has affected the market in other, unforeseen ways as well.

The average contract rate on a 30-year fixed mortgage increased 8 basis points to a two-month high of 3.82%, despite the Federal Reserve cutting the benchmark interest rate to near zero.

The decline in applications is an early sign suggesting home sales will slow and that refinancings are coming off a spike. That follows other data indicating a precipitous drop-off in business activity this month as stores and schools shutter to prevent the spread of the virus.

Joel Kan, the association’s associate vice president of economic and industry forecasting, said the drop in mortgage applications is partially because lenders during the outbreak are wrestling with capacity issues, backlogs in the pipeline, and the challenge of working remotely in real estate.

“Home purchase applications were notably impacted by rising rates and the widespread economic disruption and uncertainty over household employment and incomes,” Kan wrote.