Wednesday , December 19 2018

Higher interest rates crush mortgage application volume, down 9.4%

Mortgage application volume in the Thanksgiving week dropped to the lowest level since early January

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The highest interest rates in well over a year are putting a dip in the mortgage business.

Total mortgage application volume cut down to 9.4 percent last week when compared to the previous week, on a seasonally adjusted basis. The Mortgage Bankers Association accustomed the weekly reading to account for the Thanksgiving holiday. Volume was 0.5 percent lower than the same week last year, the first annual drop in total volume since January.

Mortgage lenders have been very thankful for a strong 2016 in terms of initiation activity. However, mortgage application volume in the Thanksgiving week fell sharply to the lowest level since early January, as mortgage rates increased to their highest point subsequently July, 2015,” stated Michael Fratantoni, chief economist for the MBA.

Refinance volume has been dropping steadily as rates rise, but it took another sharp drop, down 16 percent for the week, seasonally adjusted. Refinances are most rate sensitive and are now drop down 3 percent from a year ago, when mortgage rates were not much different than they are today.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.23 percent previous week from 4.16 percent, with points increasing to 0.41 from 0.39 (including the origination fee) for 80 percent loan-to-value ratio loans.

That rise was a persistence of a sharper jump following the election of Donald Trump. While refinance volume also fell the last week, mortgage applications to purchase a home rose sharply 2 weeks ago. That surge may have been buyers on the fence rushing to get in, fearing rates would move higher, as they did. Purchase volume previous week was essentially flat, falling 0.2 percent and volume was just 2.9 percent higher than one year ago.

“The mix continues to shift towards higher balance loans, as the usual purchase loan size reached a new survey record,” Fratantoni stated. “First-time buyers and buyers of lower priced units may have walked away from the market to some extent given the jump in rates.”

The average rate for 30-year fixed mortgages with jumbo loan balances is lower than imitating, at 4.18 percent. Banks largely hold these pricier loans on their own balance sheets rather than selling them to Fannie Mae or Freddie Mac; they can therefore offer slightly lower rates.

The share of FHA applications fell to 10.4 percent compared with 11.7 percent the last week. FHA is mostly used by lower income or first-time borrowers, so it is not surprising that share would drop. These borrowers are hardest hit by higher interest rates, as they are generally right on the margins of home ownership.

Mortgage rates edged slightly lower at the beginning of this week but the average rate on the 30-year fixed is still above 4 percent. This is the first move lower since the election, but markets are unstable.

“This could be viewed as the 1st evidence that rates are topping out in the recent range and thus [one could] consider waiting for more potential enhancement,” stated Matthew Graham, chief operating officer of Mortgage News Daily. “Waiting is risky, of course.”

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