The new year brought a new sense of caution among investors that in turn caused interest rates to pull back after a month of marching higher.
That was enough to put a little juice back into the mortgage market: Total mortgage application volume increased 5.8 percent on a seasonally adjusted basis last week from the previous week. The Mortgage Bankers Association included an adjustment for the New Year's holiday. Application volume, however, is 25 percent below year-ago levels.
Applications to refinance a home loan, which are most rate-sensitive, rose 4 percent for the week, seasonally adjusted, but are 32 percent lower from the same week a year ago. Refinance volume had been falling steadily since economic ebullience following the presidential election of Donald Trump drove investors to the stock market and out of the bond market. Mortgage rates loosely follow the yield on the U.S. 10-year Treasury, which hit a two-year high.
"Ten-year Treasury yields fell the week following New Year's Day as markets continue to adjust their expectations about the incoming administration and Federal Reserve policy," said Lynn Fisher, MBA vice president of research and economics.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.32 percent from 4.39 percent, with points decreasing to 0.41 from 0.43 (including the origination fee) for 80 percent loan-to-value ratio loans.
Mortgage applications to purchase a home rebounded a stronger 6 percent for the week, as buyers headed back to the housing market following the holidays. Purchase volume is still nearly 18 percent below where it was one year ago. That is likely due more to a lack of homes for sale and higher home prices than any increase in mortgage rates. Rates are just slightly higher than they were one year ago.
As for what lies ahead, rates are starting to move within a range again, albeit a higher range, rather than in the straight up march we saw at the end of 2016.
"In contrast, the first part of 2017 has seen [bond] traders poke their heads up and survey the scene," noted Matthew Graham, chief operating officer of Mortgage News Daily. "Some buying is going on, but it's tentative for now. This translates to rates having moved back down from the more troubling highs in late December, but without committing to triumphant surge lower."