The property for sale sign shows the house as “Under Contract” in Washington, DC, November 19, 2020.
Saul Loeb | AFP | Getty Images
Higher mortgage rates are reducing the demand for refinancing, as fewer and fewer borrowers can achieve worthwhile savings.
Requests for refinancing a home loan fell 4% in the week and 39% compared to the same week a year ago, according to the seasonally adjusted index of the Mortgage Bankers Association. Just a few months ago, the refinancing volume was more than 100% higher than the previous year. In addition, the refinancing share of mortgage activity decreased to 62.9% of total applications from 64.5% in the previous week.
The drop is due to higher interest rates, which last week reached the highest level since June 2020. The average contract interest rate for 30-year fixed-rate mortgages with loan balances in compliance ($ 548,250 or less) increased to 3.28% from 3.26% with points decreasing from 0.43 to 0.41 (including the origination fee) for loans with 20% down payment.
“After hitting a recent high in the last week of January, the refinancing index fell 26 percent to its lowest level since September 2020,” said Joel Kan, an economist at the MBA. “Rates have jumped 36 basis points since the end of January, and last week, refinancing activity fell on all types of loans.”
More than half of all borrowers currently have rates below 4%, according to Black Knight. Rates hit more than a dozen record lows last year, but have steadily increased this year as the economy recovers from the coronavirus pandemic. Rates rose further earlier this week, but may change depending on news from the Federal Reserve on Wednesday in its latest policy announcement.
Mortgage applications for home purchases, which are less sensitive to changes in weekly rates, increased 2% in the week and were 5% higher than in the same week last year.
“The buying market has helped to offset the drop in refinancing … as the recovering job market and demographic factors drive demand, despite continued supply and accessibility restrictions,” added Kan.
Buyers are also beginning to hit an accessibility barrier, as house prices rise rapidly, both for new and existing homes. Mortgage orders for newly built homes fell 9% month-on-month in February, as rates began to rise sharply.
The MBA estimate for new home sales of 748,000 units is the slowest annual pace since May last year. This occurs after seven consecutive months of a sales pace of more than 800,000 units.
The average loan size for newly built homes has also increased to a record high of more than $ 370,000, as overall housing stock levels are consistently low and house prices are rising.