The mortgage market found some new energy for a few weeks, when interest rates suddenly dropped, but it was remarkably short-lived.
Rates are on the move higher again, and that caused mortgage application volume to drop 1.5 percent last week from the previous week and 15.4 percent than a year ago, according to the Mortgage Bankers Association's seasonally adjusted report.
Refinance volume, which saw a significant gain the previous week, turned back to bleeding, down 2 percent for the week and off nearly 34 percent from a year ago, when interest rates were lower. Refinance demand is most sensitive to even the smallest moves in interest rates.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.83 percent from 4.75 percent, with points increasing to 0.53 from 0.46 (including the origination fee) for 80 percent loan-to-value ratio loans. Mortgage rates loosely follow the yield on the 10-year Treasury bond.
"Despite lingering uncertainty over a potential trade war, investors moved away from Treasurys, pushing yields up for the week," said Joel Kan, an MBA economist. "Overall mortgage application activity declined as rates rose, but government applications increased, driven largely by increases in FHA applications, reflecting stronger demand by first-time homebuyers."
FHA, the federal insurance entity that backs home loans, allows for down payments as low as 3.5 percent. First-time homebuyers have been struggling to find affordable homes, as housing continues in a supply crisis. The FHA share of total applications increased to 10.6 percent from 9.7 percent the week before.
The severe shortage of homes for sale is more of an issue for homebuyers than interest rates and continues to weaken purchase demand. Mortgage applications to buy a home fell two percent for the week and were 0.2 percent lower than the same week one year ago. Purchase applications have largely been higher on a year-over-year basis, so this drop could signal more weakness ahead.
Home prices continue to rise, and the gains in some market are getting bigger, as supply falls. More homes came on the market for the spring season, but they were quickly bought up by hungry buyers, often in bidding wars. Homes are spending less and less time on the market, meaning buyers have less time to secure financing, especially if they need more than they expected.
Mortgage rates are now sitting near seven-year highs again, but that could change swiftly on upcoming economic news. The policymaking Federal Open Market Committee is expected to raise its lending interest rate on Wednesday afternoon, but comments from members could move mortgage rates as well.
"The Fed announcement could push rates quickly higher or lower in the afternoon. Less than 24 hours later, the European Central Bank is out with their own hotly anticipated policy update," said Matthew Graham, chief operating officer of Mortgage News Daily. "In both cases, investors aren't wondering about rate hikes (we already know the Fed will and the ECB won't). Rather, it's the accompanying details that run the risk of causing significant volatility for rates."