A slight drop in interest rates is resuscitating the refinance market, but it is not doing much to juice home buying.
Total mortgage application volume decreased 1.9 percent for the week ending July 10 on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association (MBA). The previous week had an adjustment for the July 4 holiday, but it still caused a hiccup in the counting.
"Lenders did not take a uniform approach to the Saturday holiday, with some remaining open, while others closed. As a result, even with the adjustment, the weekly changes in the adjusted data have been more volatile in the past two weeks," noted Michael Fratantoni, chief economist for the MBA.
Mortgage refinancing applications increased 4 percent from the previous week, seasonally adjusted, while applications to purchase a home fell 8 percent. When comparing volume over the past two weeks, to smooth some of the holiday volatility, seasonally adjusted refinance applications rose 6.5 percent and purchase applications decreased by 1.4 percent.
This came as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged from 4.23 percent, with points increasing to 0.39 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans.
"Interest rates dropped through the middle of last week, then jumped up on Friday, leaving the weekly average rate in our survey unchanged. However, the drop in the middle of the week did spur a small pickup in refinance activity," said Fratantoni.
Compared to a year ago, refinance volume is up 5 percent, and purchase volume is up 17 percent. Refinance applications made up just over half of total applications last week, up from 48 percent the previous week.
With interest rates holding above 4 percent on the 30-year fixed, more borrowers are turning to adjustable rate loans, which offer lower rates in return for higher risk. The adjustable-rate mortgage (ARM) share of activity increased to 7.4 percent of total applications, a very small share compared to what it was at the height of the last housing boom, but gaining with every week.