Mortgage Matters: Mortgage Interest Rates Migrate Upward While Weekly Mortgage Applications Fall

The highest interest rates in about a month and high home prices took their toll on the mortgage business last week…

by Brian Barker

The highest interest rates in about a month and high home prices took their toll on the mortgage business last week.

Total mortgage application volume slipped as interest rates rose, according to the Mortgage Bankers Association. Home sales have been steadily weakening for months, mainly due to record high prices in some areas. Coupled with the lack of inventory, this means home owners potentially pay more for something they feel forced to accept as the only choice the market has to offer.

Many current homeowners are opting to refinance and use the money to add on or remodel their existing home. The rise in home prices creates an equity bonus and people are using it as a way to avoid the challenges of the tight market. However, despite this trend, applications to refinance a home loan fell 2 percent last week. These are highly sensitive to interest rate changes.

Even in the hottest markets, there is clear and definitive ceiling on what families can afford, and that limit is clearly now being hit. “We’re still selling most every home, but now it is usually with just one or two offers over the 10 to 15 offers we were seeing earlier in the year,” said David Fogg, a real estate agent based in Burbank, California.

Home ownership is, however, gaining for younger households, especially those under 35. In the second quarter of this year, their home ownership rate hit the highest level in five years, according to the U.S. Census as mortgage and real estate professionals navigate how to best reach this demographic. Digital strategies rule the day as well as anything that helps streamline the mortgage and home buying process.

MBA’s seasonally adjusted report

• Total mortgage application volume slipped 2.5 percent from the previous week and 12 percent from a year ago.

• While homebuyers are less sensitive to weekly rate moves, mortgage applications to buy a home fell for the third straight week to the lowest level in a month. Application volume for homebuyers was down 3 percent for the week and just 1 percent higher than a year ago.

• Application activity remained slow, which is in line with weak trends in other housing indicators such as home sales and housing starts.

• Mortgage applications to refinance a home loan, which are highly sensitive to interest rate moves, fell 2 percent for the week and were nearly 29 percent lower than a year ago, when rates were nearly three- quarters of a percentage point lower.

• Despite the drop, the refinance share of mortgage activity increased to 37.1 percent of total applications from 36.8 percent the previous week. The adjustable-rate mortgage share of activity increased to 6.4 percent of total applications.

• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.84 percent from 4.77 percent, with points remaining unchanged at 0.45 (including the origination fee) for loans with 20 percent down payments.

• The Refinance Index decreased 2 percent from the previous week. The share of applications intended for refinancing increased from 36.8 percent of the total the previous week to 37.1 percent.

• Applications for FHA-backed mortgages rose to 10.4 percent of the total submitted from 9.9 percent the previous week and the VA share tick up to 10.5 percent from 10.2 percent. The USDA share was unchanged at 0.8 percent.

• With the exception of fixed rate mortgages (FRM) backed by the FHA, interest rates increased last week on both a contract and an effective basis. The FHA rate was unchanged at 4.78 percent and points ticked up to 0.74 from 0.73. The effective rate was also unchanged.

• The average rate for 30-year FRM with loan balances at or below the conforming limit of $453,100 jumped to 4.84 percent from 4.77 percent. Points were unchanged at 0.45.

• The rate for jumbo 30-year FRM, loans that exceed the conforming loan limit, increased by an average of 4 basis points to 4.76 percent. Points rose to 0.37 from 0.31.

• The average contract interest rate for 15-year FRM increased to 4.29 percent from 4.23 percent, with points increasing to 0.53 from 0.44.

• The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to its highest level in the history of the MBA survey, 4.17 percent from 4.09 percent, with points increasing to 0.32 from 0.29. The ARM share of applications was up slightly from 6.3 to 6.4 percent.

Sources: CNBC; Mortgage Bankers of America; National Association of Realtors

Brian Barker,
BBVA Compass
A Corridor News Contributor