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Do the math and for most loans it amounts to barely a few dollars difference, but a slight uptick in interest rates was enough to end a brief rally in mortgage applications.
Total volume fell 6.2 percent on a seasonally adjusted basis for the week ending September 4 versus the previous week, according to the Mortgage Bankers Association (MBA).
Applications to refinance home loans, which had shot up dramatically two weeks ago, fell 10 percent in the past week. Applications to purchase a home, which are less rate-sensitive, fell 1 percent from one week earlier but are still 41 percent higher than the same week one year ago.
The annual change, however, is inflated due to the shift in Labor Day from the first week in September last year to the second week this year, according to the MBA.
The drop in refinance applications was a reaction to a minute move higher in interest rates, as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.10 percent from 4.08 percent, with points increasing to 0.39 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans. Loan sizes also shrunk, after gaining the previous week.
"The decline in the average loan size for both purchase and refinance applications last week showed again that borrowers with larger loans are much more sensitive to a given change in rates. The slight uptick led to a fairly sharp weekly drop in refinance volume, and purchase volume slipped as well," said Mike Fratantoni, chief economist for the MBA.
Interest rates did not move more decisively at the end of last week, as the August jobs report was just middle-of-the road enough to leave considerable ambiguity as to whether or not the Federal Reserve will raise interest rates this month.
"Many market participants think the Fed will hike rates for the first time since the Financial Crisis, though just as many think they'll hold off until December at the earliest," noted Matthew Graham. chief operating officer of Mortgage News Daily. "Mortgage rates are not directly dictated by the Fed's policy rate, but they tend to move higher during periods where the Fed is raising rates."