A slight drop in mortgage rates did not stop the refinancing haemorrhaging

Higher mortgage rates are hitting the refinance market hard and could finally take a toll on homebuyers.

The volume of mortgage applications fell 2.2% last week 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 compliant loan balances ($ 548,250 or less) edged down to 3.33% from 3.36%, with points declining to 0 , 39 of 0.42 (including set-up costs) for loans with a 20% down payment. The rate, however, had increased for seven consecutive weeks and is now much higher than at the start of this year.

As a result, mortgage refinancing requests fell 3% on the week and 32% less than a year ago. The refinancing share of mortgage activity fell to 60.6% of total applications, from 60.9% the previous week.

“Rising mortgage rates continue to halt refinancing activity as the pool of borrowers who can benefit from refinancing shrinks further,” said Joel Kan, MBA economist.

Mortgage applications for the purchase of a home fell 2% for the week, but were 39% higher than a year ago. This important and seemingly strong annual comparison, however, is due to the fact that the entire housing market stagnated when the pandemic struck a year ago. He then returned roaring a few months later. The weekly drop is probably more indicative of what is currently happening with homebuyers.

“Many potential buyers this spring are feeling the effects of rising rates and rapidly accelerating house prices,” Kan said. “The record level of inventories is propelling house price growth to double the rate of a year ago, and even above the 10% growth rate seen in 2005. The housing market is in desperate need of more inventory to slow price growth and preserve affordability. “

Mortgage rates started to rise again this week. Some believe that higher rates will help slow home price growth because potential buyers will simply be sidelined. However, demand does not appear to be declining, and the inventory situation is not improving at all, even with the onset of the popular spring season.