COVID 19 More borrowers are turning to refinances to save money each month, while potential home buyers are quickly dropping out of the market.

WASHINGTON–New data indicate the coronavirus pandemic appears to have created a split in the mortgage market: more borrowers are turning to refinances to save money each month, while potential home buyers are quickly dropping out of the market.

According to the Mortgage Bankers Association, total mortgage applications were up 15.3% last week over the prior week, but that number was driven entirely by refinancing.

Volume was also 67% higher than one year ago when interest rates were higher, the MBA said.

According to the MBA, after increasing for two weeks, mortgage rates last week hit the lowest level in the history of its survey. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 3.47% from 3.82%, with points decreasing to 0.33 from 0.35 (including the origination fee) for loans with a 20% down payment. That rate was 89 basis points higher from the same time in 2019, the MBA said.

No Surprise

The result? Not surprisingly, a surge in loan applications of 26% for the week—with apps up 168% over one year earlier. The refinance share of mortgage activity increased to 75.9% of total applications from 69.3% the previous week, the MBA data show.

“Mortgage rates and applications continue to experience significant volatility from the economic and financial market uncertainty caused by the coronavirus crisis,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement. “The bleaker economic outlook, along with the first wave of realized job losses reported in last week’s unemployment claims numbers, likely caused potential homebuyers to pull back.”

Purchase Apps Decline

Meanwhile, as jobless claims continue to increase, mortgage applications for purchases fell 11% last week and were 24% lower than a year ago, the MBA said.

“Buyer and seller traffic — and ultimately home purchases — will also likely be slowed this spring by the restrictions ordered in several states on in-person activities,” Kan said.

Specifically, purchase applications are down more than 30% in New York, California and Washington state.

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