The sign for a house for sale is seen in front of a house in Arlington, Virginia, on November 19, 2020.
Saul Loeb | AFP | Getty Images
The recent sharp rise in interest rates is now affecting demand for mortgage refinancing, as the number of borrowers who could benefit from it decreases.
Requests for refinancing a home loan fell 5% last week compared to the previous week, according to the seasonally adjusted index of the Mortgage Bankers Association. They were also 43% lower compared to the same week last year. This is the first year-on-year decline since March 8, 2019. Last year, at this time, mortgage rates fell dramatically as fear of the coronavirus hit the financial markets. This caused a big increase in the refinancing demand, hence this year’s comparison.
The refinancing share of mortgage activity decreased to 64.5% of total applications from 67.5% in the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with loan balances in compliance ($ 548,250 or less) increased to 3.26% from 3.23%, with points decreasing to 0.43 from 0.48 (including the origination fee) for loans with a drop of 20% Form of payment. Although the weekly movement is not so great, rates have now risen 40 basis points since the beginning of this year.
“Signs of faster economic growth, an improving job market, and greater distribution of vaccines are driving up rates,” said Joel Kan, associate vice president of economic and industrial forecasts at the MBA. “The rise in mortgage rates continues to dampen demand for refinancing applications. Activity fell last week for the fourth time in five weeks.”
As rates increase, the pool of borrowers who can benefit from refinancing decreases. About 15% of borrowers have 30-year fixed mortgages with rates below 3%, and about half of all borrowers have rates below 4%, according to Black Knight.
Mortgage applications for home purchases, which are less sensitive to changes in weekly rates, increased 7% in the week, but were only 2% higher than in the same week last year. As we now spend the one-year anniversary of the coronavirus pandemic here in the US, this annual comparison is likely to be significantly negative. Home sales stagnated in April and May 2020 during the initial blockades, before recovering strongly last summer.
“With the spring shopping season approaching, the buying market had its best performance in four weeks, with gains in both conventional and government applications,” said Kan, noting that the size of loans has moderated for the second consecutive week – potentially a sign. that more first-time buyers are entering the market.
Mortgage rates stabilized earlier this week and even declined slightly on Tuesday, but may make another decisive move on Wednesday after the 10-year Treasury auction. Mortgage rates loosely follow the yield on that bond.
“This basically gives the market a chance to vote on whether the recent rate hike is sufficient to reflect progress against the pandemic and progress towards a stronger economy,” wrote Matthew Graham, director of operations at Mortgage News Daily.