The demand for mortgage refinancing falls 43% compared to the previous year

A home for sale real estate sign is seen in front of a home in Arlington, Virginia, on November 19, 2020.

Saul Loeb | AFP | fake images

The recent spike in interest rates is now affecting the demand for mortgage refinancing, as the number of borrowers who could benefit is reduced.

Applications to refinance a home loan fell 5% last week compared to the previous week, according to the seasonally adjusted index from the Mortgage Bankers Association. They were also 43% lower compared to the same week last year. That’s the first year-on-year drop since March 8, 2019. Last year, right now, mortgage rates fell sharply as coronavirus fears hit financial markets. That sparked a huge spike in refinance demand, hence this year’s comparison.

The refinancing share of mortgage activity decreased to 64.5% of total applications from 67.5% the previous week.

Average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($ 548,250 or less) increased to 3.26% from 3.23%, with points decreasing to 0.43 from 0.48 (including opening fee) for loans with a 20% discount. payment. While the weekly move isn’t that big, rates have risen 40 basis points since the beginning of this year.

“Signs of faster economic growth, an improving job market and increased vaccine distribution are driving rates up,” said Joel Kan, associate vice president for economic and industrial forecasting at MBA. “Rising mortgage rates continue to cool demand for refinance applications. Activity slowed last week for the fourth time in five weeks.”

As rates go up, the pool of borrowers who can benefit from a refinance shrinks. About 15% of borrowers have 30-year fixed first mortgages with rates below 3%, and about half of all borrowers have rates below 4%, according to Black Knight.

Mortgage applications to buy a home, which are less sensitive to weekly rate movements, increased 7% during the week, but were only 2% higher than the same week a year ago. As we pass the first anniversary of the coronavirus pandemic here in the US, that annual comparison is likely to be negative in a significant way. Home sales stalled in April and May 2020 during the initial locks, before recovering strongly last summer.

“With the spring shopping season on the horizon, the shopping market had its best performance in four weeks, with gains in both conventional and government applications,” Kan said, noting that loan amounts eased for the second week. back-to-back, which could be a sign that more first-time buyers are entering the market.

Mortgage rates stabilized starting this week and even fell very slightly on Tuesday, but they could make another decisive move on Wednesday, following the 10-year Treasury auction. Mortgage rates loosely track the yield on that bond.

“This essentially gives the market an opportunity to vote on whether the recent rate hike is sufficient to reflect progress against the pandemic and progress toward a stronger economy,” wrote Matthew Graham, chief operating officer of Mortgage News Daily.


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