The poster selling a home’s real estate 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 affecting the demand for mortgage refinancing, as the number of borrowers who could benefit from it is reduced.
Applications to refinance a home loan fell 5% last week compared to the previous week, according to the seasonally adjusted Mortgage Bankers Association index. They were also 43% lower compared to the same week a year ago. This is the first year-over-year drop since March 8, 2019. Last year, at that time, mortgage rates fell sharply as fears of the coronavirus hit financial markets. This led to a significant increase in demand for refinancing, hence this year’s comparison.
The mortgage refinancing rate decreased to 64.5% of total applications from 67.5% the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with compliant loan balances ($ 548,250 or less) increased from 3.23% to 3.26%, with points down from 0.48 at 0.43 (including the start-up fee) for loans with a 20% down payment. While the weekly movement isn’t that big, rates are now up 40 basis points since the beginning of this year.
“Signs of faster economic growth, improved labor market and increased vaccine distribution are raising rates,” said Joel Kan, associate vice president of economic and industrial MBA forecasting. “The build-up in mortgage rates continues to cool demand for refinancing applications. Activity fell last week for the fourth time in five weeks.”
As rates increase, the group of borrowers who can benefit from a refinancing decreases. About 15 percent of borrowers have 30-year fixed-term mortgages at rates below 3 percent and about half of all borrowers have rates below 4 percent, according to Black Knight.
Mortgage applications to buy a home, less sensitive to weekly rate movements, rose 7% during the week, but were only 2% more than the same week a year ago. When we spend the one-year anniversary of the coronavirus pandemic here in the U.S., this annual comparison is likely to be significantly negative. Home sales stagnated in April and May 2020 during initial closures, before rebounding sharply last summer.
“With the spring shopping season on the doorstep, the shopping market had its strongest display in four weeks, with gains in both conventional and government applications,” Kan said, noting that loan size moderated. for the second week in a row, potentially a sign first-time buyers are entering the market.
Mortgage rates stabilized starting this week and even retreated very slightly on Tuesday, but could take another decisive step on Wednesday, following the 10-year Treasury auction. Mortgage rates smoothly track the performance of these bonds.
“This essentially gives the market a chance to vote on whether the recent rate hike is enough to reflect progress against the pandemic and progress toward a stronger economy,” wrote Matthew Graham, CEO of Mortgage News Daily operations.