It didn't take much to keep potential borrowers away from their mortgage lenders last week—a minimal rise in rates sent volume tumbling 9.2 percent, according to the Mortgage Bankers Association (MBA).
Applications to refinance a loan fell 13 percent on week, while applications to purchase a home fell 5 percent on week and are now 15 percent below the volume seen a year ago.
"Interest rates increased relative to the previous week, as incoming economic data continues to suggest a pickup in the pace of growth," said Mike Fratantoni, MBA's Chief Economist. "Some lenders continue to report that they have pre-approved borrowers who have been unable to find a property given the tight inventory in certain markets."
Tight supply is likely a better excuse than rising rates; the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.36 percent from 4.34 percent, barely a few dollars on a monthly payment. This as home builders started construction on fewer single family homes in May than April, according to a Census Bureau report Tuesday. The supply of both new and existing homes for sale is not close to meeting current demand.
Rates could move more dramatically today, as the Federal Reserve Open Market Committee (FOMC) finishes its two-day meeting and issues any policy changes at 2 p.m. Eastern time. Federal Reserve Chair Janet Yellen will make remarks shortly afterwards, which could also move markets.
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As of Tuesday, interest rates were moving higher again, following a drop on Monday.
"Stronger-than-expected inflation data fueled speculation that the Fed will remain on an aggressive path with respect to an eventual rate hike. Bond markets continued to suffer, while stocks bounced back from pre-market weakness. Most lenders ended up raising rates at least once during the day," wrote Matthew Graham of Mortgage News Daily late Tuesday.