Weekly Mortgage Refinances Fall As Interest Rates Suddenly Turn Higher
Didier Malagies • August 21, 2020
Weekly Mortgage Refinances Fall As Interest Rates Suddenly Turn Higher
Jordan Borchard posted in
Housing in Housing News
Weekly Mortgage Refinances Fall As Interest Rates Suddenly Turn Higher
Written by: Diana Olick
A sudden turnaround from record low interest rates last week caused a pullback in mortgage refinance demand.
That pulled total mortgage application volume down 3.3% from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased rather abruptly to 3.13% from 3.06%,. Points including the origination fee rose to 0.36 from 0.33 for loans with a 20% down payment.
“Positive economic data reported last week on retail sales, as well as a large U.S. Treasury auction, drove mortgage rates to their highest level in two weeks,” said Joel Kan, an MBA economist.
The rise in rates caused refinance demand to drop 5% for the week but was 38% higher than a year ago. That annual gain continues to shrink. Last month, refinance demand was more than 100% higher than a year ago.
The difference now is that interest rates are narrowing the gap to where they were a year ago. While they were a full percentage point lower annually last month, they are now 77 basis points lower, making fewer borrowers able to benefit from a refinance.
Mortgage applications to purchase a home increased just 1% for the week but were a remarkable 27% higher compared with a year ago. This marks three straight months of annual gains for purchase applications.
Demand for housing continues to swell, held back only by the severe shortage of homes for sale. Homebuilders are ramping up production, and mortgage applications for newly built homes are surging even higher.
“The housing market remains a bright spot in the current economic recovery, and these results, combined with July data on housing starts and homebuilder optimism, suggest that housing supply could be increasing to better meet the strong demand for buying a home,” Kan said.
Mortgage rates pulled back slightly to start this week. The increase last week was due partially to an increase in lender fees levied by Fannie Mae and Freddie Mac. As lenders settle into that new normal, they are falling back in line with Treasury yields.
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