Weekly mortgage refinances plummet as interest rates suddenly rise

A sudden turnaround in historically low interest rates last week caused demand for mortgage refinancing to decline.

According to the Mortgage Bankers Association’s seasonally adjusted index, the total volume of mortgage applications was down 3.3% from the previous week.

The average contractual interest rate for 30-year fixed rate mortgages with compliant loan balances ($ 510,400 or less) increased sharply enough from 3.06% to 3.13%. The points, including set-up costs, have increased to 0.36 compared to 0.33 for loans with a 20% down payment.

“Positive economic data released last week on retail sales, along with a large US Treasury auction, drove mortgage rates to their highest level in two weeks,” said Joel Kan, MBA economist .

The rate hike caused refinancing demand to drop 5% on the week but was 38% higher than a year ago. This annual gain continues to decline. Last month, refinancing demand was over 100% higher than a year ago.

The difference now is that interest rates are closing the gap from what they were a year ago. While they were one percentage point lower a year last month, they are now 77 basis points lower, allowing fewer borrowers to benefit from refinancing.

Mortgage applications for the purchase of a home only increased 1% for the week, but were remarkably 27% higher than a year ago. This marks three consecutive months of annual earnings for purchase requisitions.

The demand for housing continues to increase, dampened only by the severe shortage of housing for sale. Homebuilders are ramping up production, and mortgage applications for newly built homes are increasing even more.

“The housing market remains a bright spot in the current economic recovery, and these results, combined with July’s housing starts data and builder optimism, suggest that housing supply may increase to better meet the high demand for buying a home, ”Kan said. .

Mortgage rates edged down early this week. The increase last week was in part due to an increase in lender fees levied by Fannie Mae and Freddie Mac. As lenders settle into this new normal, they fall back on Treasury yields.