Mortgage rates moved decidedly lower last week, but neither homebuyers nor homeowners were particularly impressed. Total mortgage application volume rose just 0.4 percent seasonally adjusted compared with the previous week, according to the Mortgage Bankers Association. Volume is down 22 percent compared with the same week one year ago, due entirely to a huge drop-off in loan refinances.
With rates so low for so long, homeowners seem to have gotten used to the status quo. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to 4.17 percent from 4.22 percent, with points increasing to 0.40 from 0.31 (including the origination fee) for 80 percent loan-to-value ratio loans. It has moved within a narrow range since the presidential election.
"The decline in mortgage rates was likely the result of a range of geopolitical and economic issues, including some concerns about lower U.S. inflation and the potential for increased European growth," said Mike Fratantoni, chief economist for the MBA.
The Federal Reserve is not expected to increase interest rates Wednesday at its meeting, but investors will be watching what Chair Janet Yellen and Fed governors have to say about inflation. That will be a predictor of future policy.
The slight dip in rates last week did boost applications to refinance by 3 percent for the week, but they are still 41 percent lower compared with the same week one year ago, when rates were considerably lower. So many borrowers have already refinanced at even lower rates that the pool of potential applicants is shrinking quickly. The refinance share of mortgage activity increased to 46.0 percent of total applications from 44.7 percent the previous week. The adjustable-rate mortgage share of activity increased to 6.8 percent of total applications.
"As the number of borrowers who could still benefit from a refinance continues to decline, it will take larger and larger rate drops to make a significant impact in refinancing volume," noted Fratantoni.
Potential homebuyers, who are swayed less by weekly rate moves, continued to fall back as the busy spring season recedes and the shortage of homes for sale persists. Mortgage applications to purchase a home fell 2 percent for the week, seasonally adjusted to their lowest level since May. This week the National Association of Realtors reported a drop in home sales in June, blaming tight supply and weakening affordability for the slide.