Mortgage interest rates rose at the fastest pace in more than a year last week, already cooling demand.
Overall mortgage application volume was virtually flat this week, up just 0.5% according to the Seasonally Adjusted Mortgage Bankers Association index.
The average contract rate for 30-year fixed-rate mortgages and conforming loan balances ($ 548,250 or less) increased from 3.08% to 3.23%, increasing points to 0.48 from 0.46 (including the origination fee) for loans with a 20% decrease in payment. The rate was 34 basis points lower a year ago, but that year-on-year comparison is steadily declining. Last fall, mortgage rates were 100 basis points lower than the year before.
“Mortgage rates rose last week on the back of market expectations of stronger economic growth and higher inflation,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The 30-year fixed rate experienced its largest one-week increase in nearly a year, reaching its highest [level] since July 2020. “
Most sensitive to weekly interest rate changes, requests to refinance a home loan managed to achieve a weekly profit of 0.1% and were only 7% higher than a year ago. In comparison, the refinancing volume in mid-December was more than 100% higher than on an annual basis.
The refinancing share of the mortgage activity fell to 67.5% of the total number of applications from 68.5% last week.
Mortgage applications to buy a home were up 2% for the week and were only 1% higher than a year ago. Homebuyers face a pricey and lean housing market as homebuilders struggle to meet demand and potential sellers are withdrawing. As mortgage rates rise, affordability will continue to decline, but it looks like more startups are venturing.
“The housing market is entering the busy spring buying season with strong demand. Purchase requests increased, with an increase in government requests – likely startups – causing the average loan size to decline for the first time in six weeks,” Kan said.
Mortgage rates fell slightly this week as yields on the 10-year Treasury fell. Mortgage interest rates loosely follow that return.
“In the past two decades, there have been six months in which mortgage rates have risen by at least 50 basis points. February 2021 was one of them,” said Matthew Graham, COO of Mortgage News Daily. “In other words, it was a really bad month for rates – so bad, in fact, that it makes more sense to seek some relief simply because things don’t stay that bad for long.”