Mortgage applications fall 1.3% amid sharp jump in rates

A jump in mortgage interest rates did not affect mortgage application volume as much as expected.

Total application volume fell 1.3 percent on a seasonally adjusted basis last week from the previous week, according to the Mortgage Bankers Association.

A sign offering mortgage help at a Bank of America branch, New York City.
Scott Mlyn | CNBC
A sign offering mortgage help at a Bank of America branch, New York City.

"Mortgage rates were up for the third-consecutive week as markets responded to a stronger-than-expected job market report for October," said Mike Fratantoni, chief economist for the MBA.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.12 percent, its highest level since August, from 4.01 percent, with points decreasing to 0.45 from 0.47 (including the origination fee) for 80 percent loan-to-value ratio loans.

Refinance applications, which are highly rate-sensitive, fell 2 percent from the previous week, seasonally adjusted, but are 4 percent higher than one year ago, when rates were slightly lower. Some borrowers may be rushing to refinance now, seeing the writing on the wall that rates may only rise further from here. The Federal Reserve has sent the strongest message so far that it could raise rates in December. That is why rates began rising even before the strong employment report.

"The journey has been a quick one, with the spike from six-month lows to four-month highs happening in just under two weeks," said Matthew Graham, chief operating officer of Mortgage News Daily.

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Mortgage applications to purchase a home were less phased by the rate jump. They increased 0.1 percent from the previous week and are 18 percent higher than the same week one year ago.

Home buying has been weakening in the past few months after a strong spring. High home prices combined with high rents are making it much harder for first-time buyers, who are usually more active in the fall, to participate in the housing recovery.