According to HousingWire, a full month of sub-3% mortgage rates, ongoing housing market supply constraints, and a 300% increase in lumber prices over the past 15 months has prompted Fannie Mae's Economic and Strategic (ESR) Group to revise several of its 2021 forecasts. March's existing home sales report perfectly illustrated the country's core housing market issues – a decade of under-building led to a 3.7% decline in transactions from the prior month, even though there's never been more demand for a home.

"We have long expected that a combination of waning COVID-19-induced movement into single-family housing and continued tight inventories would lead to a slowing pace of existing home sales as the year progresses," the ESR group said. "However, the latter factor appears increasingly more limiting."

Since rates have fallen back below 3%, Fannie Mae revised its expectations for purchase and refinance volume. The economic group cut $43 billion from its 2021 purchase volume forecast; it now estimates that purchase mortgages will hit $1.8 trillion by year's end. And because record-low mortgage rates fueled the housing market's refinance wave of 2020, Fannie Mae also revised its refi origination volume to $2.2 trillion in 2021, an increase of $125 billion from last month's forecast.

"We expect refinance volume in 2022 to total $1.1 trillion, an upward revision of $43 billion from last month's forecast, but a decline of 49% from 2021," said the ESR group. "At current interest rates, we estimate around 51% of all outstanding mortgages have at least a 50-basis point incentive to refinance, up from 42% in last month's forecast given the recent rate declines."

Doug Duncan, Fannie Mae's chief economist, said to closely watch for stronger inflation and a resultant move in interest rates. As the effects of expansionary monetary policy continue to work their way through the economy, inflationary expectations may continue to rise. 

"This could lead to prices rising further even with growth concurrently slowing in the presence of diminished labor market slack and waning fiscal policy support," Duncan said. "If such a scenario were to play out, the question then becomes whether this necessitates a response by the Federal Reserve. While momentum in the housing market will likely continue in the near term, this is an increasingly important consideration for 2022."

Homebuyers are applying for even bigger mortgages as home prices soar

Sky-high home prices mean demand for ever bigger mortgages, but those prices may also be causing a pullback in homebuying overall, according to CNBC.

Mortgage applications to purchase a home fell 4% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was just 2% higher than the same week one year ago, when the housing market was just starting to come back after the pandemic shut it down.

"A decline in purchase applications was seen for both conventional and government loans," said Joel Kan, an MBA economist. "There continues to be strong demand for buying a home, but persistent supply shortages are constraining purchase activity, and building material shortages and higher costs are making it more difficult to increase supply."

The extreme shortage has prices continuing to climb at the fastest pace in over 15 years, and as a result, average purchase loan balances are climbing in tandem. Last week, that average hit $411,400 — the highest since February.

"Ongoing volatility in refinance applications is likely if rates continue to oscillate around current levels," Kan said.

Mortgage rates have been in a holding pattern this week, with no significant economic reports or news to move them one way or another.

Investors are buying up single-family homes across the U.S.

According to HousingWire, After three straight quarters of declines, home purchases by investors rose 2.7% year over year in the first quarter of 2021, marking the first period of growth since the COVID-19 pandemic began, per a new study from Redfin.

Looking to take advantage of the hot housing market and a soaring stock market, investors bought about 1 of every 7 U.S. homes in the first quarter — up from the prior three quarters, in which they bought closer to 1 in 10 homes.

"Investors are likely starting to feel more comfortable because the economy is in recovery mode," said Sheharyar Bokhari, Redfin senior economist. "They also may be jumping back in because they see the intensifying shortage of homes for sale as an opportunity. With so few houses on the market, many families are resorting to rentals. Flush with cash, investors are able to snap up the homes that are available, and then turn around and rent them out to folks who can't find a home or are priced out of homeownership."

Investor purchases of high-priced homes jumped 19.8% year over year in the first quarter. By comparison, investor purchases of mid-priced homes rose 12.7% and investor purchases of low-priced homes declined 9.2%. Sales of luxury homes, specifically, rose 41.6% year-over-year in the first quarter of 2021, crushing sales of affordable homes (7% increase) and mid-priced homes (5.9%).

Those numbers showcase both sides of the COVID-19 crisis, with affluent Americans taking advantage of low mortgage rates and the ability to work from anywhere, and buying up high-end houses — particularly in popular vacation destinations. Meanwhile, many lower-income Americans have lost their jobs and lack the means to become homeowners.

Cities with the highest market share of investor purchases in the first quarter were Miami at 23.8%, Atlanta at 22.2%, Jacksonville, Florida at 22.1%, and Charlotte, North Carolina at 21.5%.

Weekly Mortgage Rate Update

After a run up over the first few months of the year, rates have paused and hovered around three percent since March. Despite this favorable rate climate, there remains a shortage of homes for sale. The lack of housing supply has been compounded by labor disruptions and expensive building materials that are driving up the cost of new housing, making it difficult for homebuyers to find homes to purchase.

The Freddie Mac weekly survey shows the average rate for a 30-year fixed mortgage is 3.0%, which is 0.06 points higher than last week, and down 0.24 points from this time last year.