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Home loan borrowers seem undeterred by the highest interest rates in five months, or perhaps provoked by them. This is especially evident among homebuyers.
Mortgage application volume increased 6.2 percent last week from a week earlier, according to a survey by the Mortgage Bankers Association. The seasonally adjusted reading includes an adjustment for the Veterans Day holiday.
Applications to refinance loans increased 2 percent from the previous week, seasonally adjusted, and applications to purchase a home jumped 12 percent. Purchase applications are now 19 percent higher than a year ago, as mortgage-dependent, owner-occupant buyers replace cash-heavy investors.
"This was despite the fact that mortgage rates reached their highest level since July," said Michael Fratantoni, the association's chief economist.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.18 percent from 4.12 percent, with points remaining unchanged at 0.45 (including the origination fee) for 80 percent loan-to-value ratio loans.
Borrowers buying a home are not getting any help on the credit side either. FICO scores are still historically high on purchase loans; Ellie Mae, a mortgage software and analytics company, reported the average credit score on closed purchase loans was at 755 in October, at least 30 points higher than the median consumer credit score.
Refinancers, however, have had an easier time, with their average FICO credit score at 726. Credit scores on refinances have come down dramatically in the last six months, but those on loans to purchase a home have not.
"What we are seeing is refinances increasing as we anticipate interest rates going up. It's a great accelerator and motivator for many people," said Jonathan Corr, CEO of Ellie Mae. "This month we saw the third-consecutive month of refinance volume increases."
The adjustable-rate borrowing share of loan applications continues at historically low levels, even though the average interest rate for ARMs was far lower, at 3.18 percent last week, according to the MBA. Just 5.4 percent of all closed loans in October were ARMs, according to Ellie Mae. Today's consumers are highly risk-averse, even though interest rates are still comparatively very low.