Real Estate

Mortgage applications drop 3.7% as refinancing hits 8-year low

A woman looks at real estate postings outside a Berkshire Hathaway Home Services office in Montclair, N.J.
Adam Jeffery | CNBC

A slowdown in refinancing pulled down the total mortgage application volume last week as changes to certain government-loan programs made refinances less lucrative. Refinance volume now stands at its lowest level since June 2009.

Refinance volume now stands at its lowest level since June 2009.

Total mortgage application volume fell 3.7 percent on a seasonally adjusted basis last week from the previous week, and are nearly 31 percent lower than the same week a year ago, according to the Mortgage Bankers Association.

Refinances continued their fall, which began in earnest after interest rates shot up following the presidential election. Mortgage applications to refinance fell 3 percent for the week, and are exactly half the volume they were one year ago. Compounding the effect of higher interest rates, a change in Veterans Administration rules made it harder for borrowers to refinance.

"One driver of the drop in volume last week was a sharp decrease in VA refinance applications, which fell more than 17 percent," said Mike Fratantoni, MBA's chief economist. "On Feb. 1, Ginnie Mae implemented new criteria regarding the inclusion of VA-streamlined refinances in certain mortgage-backed-security pools, and this likely led to a decrease in streamlined refinances last week."

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $424,100 or less, decreased to 4.32 percent from 4.35 percent. Points remained unchanged at 0.34, including the origination fee, for 80 percent loan-to-value ratio loans. The rate is still higher than it was a year ago.

Mortgage rates moved slightly higher in the first few days of this week, especially after Federal Reserve Chair Janet Yellen suggested a rate hike could come sooner than later.

Mortgage applications to purchase a home, which are less rate-sensitive week to week, fell 5 percent from a week earlier and are just 3 percent higher than a year ago. While there is high demand for housing right now, and real estate agents are reporting strong buyer interest, home prices are significantly higher than a year ago, and supply is limited. The drop in purchase volume is not a good sign for sales, with the usually busy spring market right around the corner.

Higher overall housing costs are causing more borrowers to opt for adjustable-rate mortgages, which reached their highest level in over a year. Adjustable-rate mortgages offer lower interest rates and rates can be fixed for 10 or even 15 years.