An Open House sign is displayed in the front yard of a Columbus, Ohio home for sale.

Ty Wright | Bloomberg | Getty Images

The staggering surge in home purchases caused by the coronavirus pandemic may finally ease. Mortgage rates are hovering near record lows, but buyers are taking a sticker shock in today’s overheated real estate market.

According to the Mortgage Bankers Association, whose seasonally adjusted index took into account the Christmas and New Year holidays, home purchase mortgage applications fell 0.8% in the two weeks ending January 1, compared to the second week of December.

More meaningful was that the purchasing volume was only 3% higher than in the same period of the previous year. Annual comparisons in recent months have shown that the purchasing volume has increased by more than 20% compared to the previous year. Obviously the buyers are withdrawing.

House prices have increased at an accelerating pace, and this could result in more and more buyers being withdrawn from the market despite near-record low mortgage rates.

The average contract rate on 30 year fixed rate mortgages with compliant loan balances ($ 510,400 or less) decreased from 2.90% to 2.86% at year-end. The points for loans with a 20% deposit have been increased from 0.31 (including the origination fee) to 0.35. Buyer mortgage demand has retreated in the last two weeks of 2020, likely due to rapidly rising prices.

“The record-low fixed rate mortgage rates are good news for borrowers looking to refinance or buy a home, as around 98% of all fixed rate loan applications are made,” said Joel Kan, associate vice president of Economic and MBA at MBA Industry Forecasts.

Still, home loan refinancing requests were down 6% from two weeks earlier. They were 100% higher than the same week last year. Mortgage rates were more than a full percentage point higher at the end of 2019.

Most analysts don’t expect a significant rise in mortgage rates in 2021 as the Federal Reserve continues to put money into the mortgage market. The course started this week with the last record low. Clearly, with the Georgia Senate runoff election and Friday’s monthly employment report, there is great potential for a two-way move this week.