A home’s real estate sale sign shows that the home is “under contract” in Washington, DC, on November 19, 2020.
Saul Loeb | AFP | Getty Images
Higher mortgage rates reduce the demand for refinancing, as fewer and fewer borrowers can get worth the savings.
Applications to refinance a home loan fell 4% a week and fell 39% compared to the same week a year ago, according to the seasonally adjusted Mortgage Bankers Association index. Just a few months ago, the volume of refinancing was more than 100% higher than the previous year. In addition, the share of refinancing of the mortgage activity decreased to 62.9% of total applications, from 64.5% in the previous week.
The fall 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 compliant loan balances ($ 548,250 or less) increased to 3.28% from 3.26% with points decreasing to 0.41 from 0.43 (including origination fee) for loans with an initial income of 20% .
“After reaching a recent high in the last week of January, the refinancing rate has fallen 26% to its lowest level since September 2020,” said Joel Kan, an MBA economist. “Rates have jumped 36 basis points since late January and last week refinancing activity fell on all types of loans.”
Currently, more than half of all borrowers have rates below 4%, according to Black Knight. Rates set more than a dozen record lows last year, but have risen steadily this year as the economy recovers from the coronavirus pandemic. Rates rose further to begin this week, but could make a turnaround according to Federal Reserve news on Wednesday in its latest policy announcement.
Mortgage applications to buy a home, less sensitive to weekly rate movements, rose 2% during the week and were 5% higher than the same week a year ago.
“The purchasing market helped offset the fall in refinances … as the recovery in the labor market and demographic factors drive demand, despite constant supply and affordability restrictions,” Kan added.
Buyers are also starting to reach an affordable wall, as house prices are rising rapidly for both new and existing homes. Mortgage applications for newly built homes fell 9% monthly in February as rates began to rise decisively.
The MBA estimate of new home sales of 748,000 units is the slowest annual pace since May last year. This happens after seven consecutive months of a sales pace of more than 800,000 units.
The average loan size for new homes also rose to a record high of more than $ 370,000 as overall housing inventory levels are steadily low and house prices are rising.