Mortgage Demand Weakens as Rates Jump
Total mortgage application volume for refinancings and home purchases tumbled last week, plunging 7.4 percent from the previous week, the Mortgage Bankers Association reported Wednesday. Rising mortgage rates were the likely culprit, as they increased by the largest amounts since November 2016.
“Rates continued to increase last week, given increasing evidence that the Fed and other central banks are more likely to raise rates,” says Michael Fratantoni, the MBA’s chief economist. “Additionally, minutes from the June [Federal Open Market Committee] meeting showed clear plans to start reducing the size and scope of the Fed’s balance sheet and to continue raising the fed funds rate, a signal of confidence in the U.S. economy and job market.”
The MBA reported that the 30-year fixed-rate mortgage rose to a 4.22 percent national average last week, up from 4.20 percent the previous week.
Total mortgage application volume is now 36 percent lower than a year ago. The increase in rates had the biggest impact on refinancing applications, which dropped 13 percent last week and reached the lowest level since January. Refinance applications are now 58 percent below a year ago.
Applications for home purchases dropped 3 percent last week, but remain 3 percent higher than a year ago, the MBA reports. An increase in home prices is prompting more loans backed by the Federal Housing Administration, which offers low down payments and lower interest rates.
“We saw a 2.7 percent increase in government purchase applications, which contributed to a decrease in the average purchase application loan size,” Fratantoni says.