Mortgage demand is being affected by a sharp increase in mortgage interest rates during the last few weeks. The seasonally adjusted index by the Mortgage Bankers Association shows that the overall volume of applications fell almost 7% last week.
Average contract interest rates for 30-year fixed rate mortgages (conforming loan balances of $554,250 or less), rose to 3.14% and 0.34 respectively. Points also increased from 0.34 to 0.35 for loans with 20% down payments. This is the highest rate since July.
Refinance demand, which is especially sensitive to weekly interest rate movements, fell to the lowest level in three months, down 10% last week compared with the previous week. Volume was 16 percent lower than that of the week last year.
Joel Kan, MBA associate vice president for economic and industry forecasting, stated that higher rates reduce borrowers’ motivation to refinance.
Mortgage applications to purchase a home declined 2% for the week and were 13% lower than the same week one year ago. It was driven by a drop in conventional loan applications. Government loans, which are mostly used by lower-income borrowers, saw a 1% increase in demand.
However, that wasn’t enough to reduce the loan balance average of $410,000. Kan said that conventional loans and mortgages with higher loan balances are still the most popular types of lending due to home price appreciation and high sales prices.
To start the week, rates fell a bit but moved up Tuesday. Economic data was reflected in the bond market’s reaction.
Matthew Graham is chief operating officer of Mortgage News Daily. He stated, “After an important study on the service sector was out stronger than expected,” that bonds continued their decline. Mortgage lenders sometimes make adjustments mid-day to rate offers when bonds lose too much ground during a trading session.