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Mortgage refinances surge 11%, as rates drop to three-year low

The Brexit-induced boomlet in mortgage refinances hit new highs last week.

Lower interest rates pushed total mortgage application volume up 7.2 percent last week from the previous week, according to the Mortgage Bankers Association. The seasonally adjusted reading included an adjustment for the Fourth of July holiday.

Refinance applications were entirely behind the jump, increasing 11 percent from the previous week to the highest level in three years.

Refinances had surged 21 percent the previous week and are up nearly 65 percent from the same week one year ago, when interest rates were higher. The refinance share of mortgage activity increased to 64 percent of total applications from 61.6 percent the previous week.

A pedestrian walks by a Wells Fargo home mortgage office in San Francisco.
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A pedestrian walks by a Wells Fargo home mortgage office in San Francisco.

"Mortgage rates dropped again last week to their lowest level in more than 3 years, as investors continued to seek safety in US assets given the global turbulence following the Brexit vote," said Mike Fratantoni, chief economist for the MBA.

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 May 2013, 3.6 percent, from 3.66 percent, with points increasing to 0.36 from 0.32 (including the origination fee) for 80 percent loan-to-value ratio loans. For jumbo loan balances (greater than $417,000) the average rate fell to 3.61 percent from 3.67 percent.

"For the second week in a row, jumbo rates exceeded conforming rates on 30-year fixed-rate loans, reversing the pattern that has been in place for much of the past three years," Fratantoni said. "This could be a sign that banks are being somewhat more cautious in putting long-term, fixed-rate assets on their balance sheets at these rate levels."

Mortgage applications to purchase a home, which are less rate-sensitive, didn't move at all during the week. The volume was 5 percent lower than the same week one year ago, but last year the holiday fell on the prior week, so that could be skewing the numbers.

Lower rates have not served as much enticement to homebuyers because they are not offsetting the big gains in home prices or help with the lack of supply of homes for sale. Buyer traffic fell off significantly in June, according to a monthly survey of real estate agents by Credit Suisse.

"Although some local markets remain on solid economic footing, more agents are citing buyers' concerns with the broader economy and volatile financial markets as holding activity back. Moreover, high-end market trends continue to lag those of the low-end in many metros" Credit Suisse said.

The drop in buyer activity was widespread, but there continues to be stronger activity in Seattle, Portland, Oregon, Denver and Austin, Texas. Tech workers who are moving out of pricey San Francisco have been flooding these cities, as major tech employers open offices there.