Higher Mortgage Rates Impacting Demand for Refinancing
The recent increase in mortgage rates is having a negative effect on the demand for refinancing. According to the Mortgage Bankers Association, mortgage application volume decreased by 0.8% last week compared to the previous week.
Rising Interest Rates for Fixed-Rate Mortgages
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 7.27% from 7.21%. Points also increased to 0.72 from 0.69, including the origination fee, for loans with a 20% down payment.
Decline in Refinance Activity
Demand for refinances dropped by 5% for the week and was 31% lower than the same week one year ago. The refinance share of mortgage activity decreased to 29.1% of total applications. To put this into perspective, during the same period in 2020, when interest rates were around 3%, the refinance share of mortgage applications was 63%.
Mixed Results for Home Purchase Applications
Applications for mortgages to purchase a home rose by 1% week to week, but were 27% lower than the same week one year ago. The adjustable-rate mortgage share of total applications increased, indicating that potential buyers are utilizing all available options to lower their monthly payments. However, adjustable-rate mortgages are considered riskier due to their shorter fixed-rate terms.
Minimal Incentive for Refinancing and Home Buying
Joel Kan, an economist at the Mortgage Bankers Association, stated that mortgage applications have decreased for the seventh time in eight weeks, reaching the lowest level since 1996. High interest rates have led to minimal refinance activity and a reduced motivation for homeowners to sell and buy new homes at higher rates.
Potential Impact of Consumer Price Index
Mortgage rates remained high at the beginning of this week, but there is a possibility of change following the release of the monthly Consumer Price Index on Wednesday. Any significant deviations from expectations in this data could have a substantial effect on the bond market and mortgage rates.
Source: Mortgage News Daily