Defying expectations for the start of 2016, mortgage rates spiraled down further last week, spurring more volume in the mortgage market. Total applications increased 8.8 percent on a seasonally adjusted basis last week from the previous week, according to the Mortgage Bankers Association.
Refinance applications were behind much of the surge, rising 11 percent from the previous week, seasonally adjusted. The results include an adjustment for the Martin Luther King Jr. holiday.
Borrowers are clearly seeing the rate drop as perhaps a last opportunity to seize on historically low rates. Refinance volume is still down 30 percent from the same week a year ago, when mortgage rates were even lower. Most economists predict that interest rates will rise steadily through 2016, although plunging equity markets in the U.S. and overseas have trumped that premise so far.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to its lowest level since October, 4.02 percent, from 4.06 percent, with points decreasing to 0.40 from 0.41 (including the origination fee) for 80 percent loan-to-value ratio loans.
"As a result of more financial market volatility and continued flight to quality by investors, mortgage rates have decreased 18 basis points since the first week of January 2016," said Joel Kan, an MBA economist. "With a 30-year fixed rate of 4.02 percent in the most recent week, the refinance index was at its highest since the week ending October 1, 2015, a week when rates were 3.99 percent, and there was a rush of applications before the Know Before You Owe rule implementation deadline."
That new rule from federal regulators, designed to protect borrowers, was widely expected to delay loan closings, and recent Realtors' confirm that it did.
Mortgage applications to purchase a home increased 5 percent week-to-week, seasonally adjusted, and were 22 percent higher than the same week one year ago. Homebuyers are less sensitive to weekly rate moves, as they are facing a much bigger issue in the market today, namely a lack of homes for sale and fast-rising prices.
Home sales rebounded in December, but largely due to the new mortgage rule that delayed some closings into December. Real estate agents are not looking for the same growth in January, as decade-low supply continues to plague neighborhoods nationally.
"At Redfin we are seeing one of the slowest starts to the year that we've seen in a long time. Lots of people are touring homes but few are making offers," said Nela Richardson, chief economist the real estate brokerage. "Even where there is inventory, a lot of it is overpriced or unappealing. Homebuyers this year are motivated but not desperate, and they refuse to overpay."