A home sale sign for real estate shows the home was listed as “under contract” on November 19, 2020 in Washington, DC.
Saul Loeb | AFP | Getty Images
Higher mortgage rates reduce the demand for refinancing as fewer and fewer borrowers can now make worthwhile savings.
The Mortgage Bankers Association seasonally adjusted index shows that home loan refinance requests fell 4% over the week, down 39% from the previous week. Just a few months ago, the refinancing volume was more than 100% higher than in the previous year. In addition, the refinancing share of mortgage activity decreased from 64.5% in the previous week to 62.9% of total applications.
The decline is due to higher interest rates, which last week hit their highest level since June 2020. The average contract rate for 30-year fixed rate mortgages with compliant loan balances ($ 548,250 or less) increased from 3.26% to 3.28 percentage points from 0.43 (including the origination fee) for loans with a 20% down payment to 0. 41.
“After hitting a new high in the last week of January, the refinancing index has since fallen 26 percent to its lowest level since September 2020,” said Joel Kan, MBA economist. “Interest rates have risen 36 basis points since late January, and refinancing activity has declined on all types of loans over the past week.”
Currently, more than half of all borrowers have interest rates below 4%, according to Black Knight. Interest rates hit more than a dozen record lows in the past year, but have risen steadily this year as the economy rebounded from the coronavirus pandemic. Interest rates rose even higher earlier this week but could change based on news from the Federal Reserve on Wednesday in its latest policy announcement.
Home purchase mortgage applications, which are less sensitive to weekly rate changes, rose 2% over the week and were 5% higher than the same week a year ago.
“The shopping market has helped offset the collapse in refinancing … as the recovering labor market and demographic factors drive demand despite persistent supply and affordability constraints,” Kan added.
Buyers are also encountering an affordability wall as property prices rise rapidly for both new and existing homes. New home mortgage applications fell 9% month on month in February as interest rates rose sharply.
MBA’s estimate for new home sales of 748,000 units is the slowest annual pace since May last year. That comes after seven consecutive months with a sales rate of more than 800,000 units.
The average loan size for newly built homes also rose to a record high of more than $ 370,000 as overall residential inventories are consistently low and property prices are rising.