Both applications to refinance a loan and to purchase a home fell, as interest rates maintained a slow climb. Refinance applications decreased 4 percent from the previous week, seasonally adjusted, and purchase applications decreased 5 percent. Applications for government loans, which require very low down payments, fell 6 percent for the week to the lowest level since November.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) remained unchanged at 3.85 percent, with points decreasing to 0.36 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio loans. Rates for other loan products, however, rose.
"Market expectations for a June Fed [rate] hike have increased recently, leading to a flattening of the yield curve, as short-term rates have risen more than longer-term rates. As a result, we saw an increase in rates for 15-year mortgages last week, even as rates on 30-year loans remained unchanged," said MBA Chief Economist Mike Fratantoni. "We have also seen the ARM [adjustable rate mortgage] share drop, as more borrowers opt for fixed-rate loans."
Jumbo borrowers have also moved away from the market due to rising rates. The average loan size on refinances has now dropped for three straight weeks. Buyers may also be getting sticker shock, as home prices continue to rise faster than they were expected to this year.
"House prices have breached the peak levels of 2006, raising concerns about the long-term sustainability of current price levels," Sean Becketti, chief economist at Freddie Mac, wrote in a report detailing how the gap between home prices and income is increasing dramatically, leading to higher risk in the housing market.