The home for sale sign is on display in front of a home in Arlington, Virginia, Nov. 19, 2020.
Saul Loeb | AFP | Getty Images
The recent sharp rise in interest rates is now taking its toll on mortgage refinancing demands as the number of borrowers who could benefit from it is dwindling.
According to the Mortgage Bankers Association’s seasonally adjusted index, requests to refinance home loan fell 5% last week from the week before. They were also 43% lower compared to the same week a year ago. That is the first year-on-year decline since March 8, 2019. Last year, mortgage rates fell dramatically at this point as fears of the corona virus hit the financial markets. That caused a big spike in the demand for refinancing, hence this year’s comparison.
The refinancing share of the mortgage activity fell to 64.5% of the total number of applications, from 67.5% the week before.
The average contract rate for 30-year fixed-rate mortgages and conforming loan balances ($ 548,250 or less) increased from 3.23% to 3.26%, with points decreasing from 0.48 to 0.43 from 0.48 (including the origination fee) for loans with a 20% decrease in payment. While the weekly movement is not that great, interest rates have now risen 40 basis points since the beginning of this year.
“Signs of faster economic growth, an improving job market and greater vaccine distribution are driving rates up,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “The rise in mortgage rates continues to cool demand for refinancing applications. Activity fell last week for the fourth time in five weeks.”
As interest rates rise, the pool of borrowers who can benefit from a refinance shrinks. According to Black Knight, about 15% of borrowers have a fixed first mortgage with a term of 30 years and an interest rate below 3%, and about half of all borrowers have an interest rate below 4%.
Mortgage applications to buy a home, which are less sensitive to weekly rate changes, were up 7% during the week, but were only 2% higher than the same week a year ago. As we pass the one-year anniversary of the coronavirus pandemic here in the US, that annual comparison is likely to turn significantly negative. Home sales stopped during the initial lockdowns in April and May 2020, before rebounding strongly last summer.
“With the spring buying season approaching, the buying market had its strongest performance in four weeks, with gains in both conventional and government applications,” Kan said, noting that the size of the loans declined for the second consecutive week – possibly a sign that more first time buyers enter the market.
Mortgage rates are leveling off to start this week and even declining very slightly on Tuesday, but they could take another decisive step on Wednesday, following the 10-year Treasury auction. Mortgage rates loosely track the yield on that bond.
“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 towards a stronger economy,” wrote Matthew Graham, chief operating officer of Mortgage News Daily. .