Mortgage Applications are Skyrocketing – What It Means for Auto Retail

Applications for mortgages in the United States have increased eight percent over last week, according to the latest Weekly Mortgage Applications Survey by the Mortgage Bankers Association. What’s more striking yet is that mortgage applications are 21 percent higher than the same period last year.

The eight-percent increase follows strong weeks of applications since the COVID-19 pandemic restrictions started being lifted and Americans began resuming some sort of normalcy. MBA’s Associate Vice President of Economic and Industry Forecasting, Joel Kan, said, “Purchase applications increased to the highest level in over 11 years and for the ninth consecutive week. The housing market continues to experience the release of unrealized pent-up demand from earlier this spring, as well as a gradual improvement in consumer confidence.”

Another interesting detail is that the interest rate for 30-year fixed-rate mortgages with balances below $510,400 dropped to the lowest level in the survey’s history, from 3.38 percent to 3.30 percent. The survey has been conducted since 1990.

Kan mentions, “Mortgage rates dropped to another record low in MBA’s survey, leading to a 10 percent surge in refinance applications. Refinancing continues to support households’ finances, as homeowners who refinance are able to gain savings on their monthly mortgage payments in a still-uncertain period of the economic recovery.”

What Mortgages Have to Do with Auto Retail

Almost all car buyers in the retail sector borrow for their purchase, whether financing or leasing. Like the real estate industry, customer sentiment is a significant driver for how the industry performs as a whole. Parallels are easily drawn between real estate lending and auto retail lending according to the economy’s performance.

Like mortgage rates, captive auto lending rates are at a historical low with no-interest loans extending up to seven years. These rates have been implemented to spur on recovery to pre-pandemic normal levels, and they’ve done so very well. Yet, dealers can still take lessons from the mortgage lenders to set themselves apart and sell even more cars.

Hit the Refinancing Note

With rates dropping, mortgage lenders have recaptured previous clients wishing to save on payments by refinancing. That’s a secure strategy for lenders with real estate being a consistent investment that increases in value.

Dealers can adopt that same emphasis for previous car buyers who are still working through their loan payments from three to six years ago. There’s a window of opportunity with clients who are paying rates that are several points higher on an aging car who could be willing to lower their payments by buying a new car. Assuming positive equity, it could lower a customer’s payments on a car that’s covered by warranty.

Emphasize Cost of Ownership for New Cars

Real estate values continuously go up for well-maintained properties. With autos being a depreciating asset, maintenance and repairs only serve to increase the customer’s spending on their car. For the millions of Americans still unemployed, a worry is keeping their aging car running for the foreseeable future.

A good strategy is to advertise the cost of ownership for a new 2020 model compared with the three-to-five year-old model and demonstrate the savings of switching into a new car. By showing the true cost of ownership sways in the customer’s favor for a new car, it can be the factor that emerging positive consumer sentiment needs to further increase car sales.

Increased activity in the mortgage market is a signal that Americans are ready to spend on large purchases once again. Make the most of the early stages to position your store well.

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Car Biz Today, the official resource of the retail automotive industry.