After watching interest rates rise for nearly two months, homebuyers and homeowners took baby steps back into the mortgage market.
Total mortgage application volume rose 2.5 percent, seasonally adjusted, last week versus the previous week, according to the Mortgage Bankers Association. Volume, however, is still nearly 11 percent lower than the same week one year ago.
After 10 weeks of declines, applications to refinance a home loan gained a little steam, rising 3 percent for the week but still down double digits from a year ago. Despite rising rates, thousands of borrowers can still benefit from a refinance. Some have been sidelined by negative home equity, which disqualifies them from refinancing. Fast-rising home prices, however, are bringing more and more borrowers above water and finally allowing them to take advantage of what are still relatively low rates.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to its highest level since May 2014, 4.41 percent, from 4.28 percent, with points increasing to 0.38 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio loans.
"Mortgage rates increased at least partially as a result of the Federal Reserve's rate hike and move to a slightly more hawkish stance," said Mike Fratantoni, MBA's chief economist. "Borrowers may have gotten applications into their lender in advance of the FOMC announcement, as most observers anticipated an increase in the Fed's rate target at the December meeting."
Mortgage applications to purchase a home, which are less sensitive to weekly rate moves, also increased 3 percent for the week. Purchase volume is barely 1 percent higher than the same week one year ago. As rates rise, however, the bulk of the buying is by wealthier Americans who may be trading up from their current home and using gains from that sale. First-time buyers, who have little to put down and less ability to adapt to higher monthly payments, are being sidelined once again due to rising rates.
"Purchase activity remains skewed towards the higher end, with the average purchase loan size at its second highest level in the history of the survey," said Fratantoni.
The average loan size was $312,000, well above the median sale price of an existing home currently.
The adjustable-rate mortgage (ARM) share of activity increased to 6.5 percent of total applications, its highest level since February; ARMs offer lower interest rates and can be a good option for buyers who don't intend to stay in their home for more than a decade.