Homebuyers are clamoring to capitalize on the lowest interest rates in almost a year, driving total mortgage application volume 9.9 percent higher last week.
The Mortgage Bankers Association's seasonally adjusted weekly index is still 19 percent lower than the same week last year, due to lower refinance volume. The week's results included an adjustment for the Labor Day holiday.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to 4.03 percent from 4.06 percent, with points increasing to 0.40 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio loans.
"Overall, mortgage rates continued to decline last week with the 30-year fixed rate decreasing 3 basis points to its lowest level since the 2016 election. Rates have decreased almost 20 basis points since mid-July," said Joel Kan, an MBA economist.
After declining for weeks, mortgage applications to purchase a home jumped 11 percent for the week and were 7 percent higher than a year ago. Homebuying usually ramps up after Labor Day, and there is plenty of pent-up demand from buyers over the summer who ran up against tight inventory. Sellers also tend to list just after the holiday, which marks the unofficial end of summer.
Mortgage applications to refinance a home loan, which are highly rate-sensitive, rose up 9 percent for the week. They are still 35 percent lower compared than the same week one year ago, when interest rates were slightly lower.
The jump in mortgage applications is impressive on its own, but it would have been higher had two massive hurricanes not struck the U.S. this month.
"To illustrate the impact of the two major hurricanes, over the past two weeks, mortgage applications for the state of Texas ran about 25 percent lower than the state's weekly average for the year to date, reflecting the impact of Hurricane Harvey," said Kan. "Additionally, in the most recent week we saw mortgage applications in Florida fall 48 percent lower than its 2017 weekly average, as many residents evacuated in anticipation of Hurricane Irma. In comparison, the level of applications for the nation last week was only 12 percent lower than its 2017 average."
Mortgage rates began moving higher this week, as concerns abated about North Korea, which had pushed investors to the relative safety of the bond markets. Investors began pulling out of bonds this week, causing interest rates to rise. Mortgage rates loosely follow the yield on the 10-year U.S. Treasury.