Mortgage refinance demand piles up 39% as rates continue to climb

A home’s real estate sale sign shows the home is “under contract” in Washington, DC, on November 19, 2020.

Saul Loeb | AFP | fake images

Higher mortgage rates are reducing the demand for refinancing, as fewer and fewer borrowers are able to make worthwhile savings.

Applications to refinance a home loan fell 4% during the week and 39% compared to the same week last year, according to the seasonally adjusted index from the Mortgage Bankers Association. Just a few months ago, the volume of refinancing was more than 100% higher than the previous year. In addition, the refinancing share of mortgage activity decreased to 62.9% of total applications from 64.5% the previous week.

The drop is due to higher interest rates, which last week reached the highest level since June 2020. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($ 548,250 or less ) increased to 3.28% from 3.26% with points decreasing to 0.41 from 0.43 (including the origination fee) for loans with a 20% down payment.

“After reaching a recent high in the last week of January, the refinance ratio has fallen 26 percent to its lowest level since September 2020,” said Joel Kan, MBA economist. “Rates have risen 36 basis points since the end of January, and last week’s refinancing activity fell across all types of loans.”

More than half of all borrowers currently have rates below 4%, according to Black Knight. Rates set more than a dozen record lows last year, but have risen steadily this year as the economy recovers from the coronavirus pandemic. Rates rose even higher to start this week, but could take a turn depending on news from the Federal Reserve on Wednesday in its latest policy announcement.

Mortgage applications to buy a home, which are less sensitive to weekly rate changes, increased 2% during the week and were 5% higher than the same week last year.

“The buying market helped offset the decline in refinances … as the recovering job market and demographic factors drive demand, despite ongoing supply and affordability constraints,” Kan added.

Buyers are also beginning to hit an affordability wall, as home prices rise at a rapid rate for both new and existing homes. Mortgage applications for newly built homes fell 9% month-on-month in February, as rates began to climb decisively.

MBA’s estimate of new home sales of 748,000 units is the slowest annual pace since May of last year. That comes after seven consecutive months of a sales rate of more than 800,000 units.

The median loan amount for new construction homes also rose to a record high of more than $ 370,000, as overall home inventory levels are consistently low and home prices are on the rise.


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