Homeowners continued their rush to refinance, as mortgage rates jumped even higher last week.
The new highs seem to be sending a message that this is the last chance for most borrowers to benefit from a refinance.
Total mortgage application volume rose 2.9 percent last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 15.5 percent lower than the same week one year ago, when interest rates were nearly a full percentage point lower.
Applications to refinance a home loan increased 3 percent from the previous week but were still 34.5 percent lower than the same week one year ago. Interest rates have been so low for so long that most homeowners who are eligible have already refinanced to near record-low rates. For those looking to pull cash out of their homes, given the recent increases in home values and equity, higher rates mean it is better to take out a second loan rather than lose a low rate on a first mortgage.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to its highest level since April 2011, 4.97 percent from 4.88 percent, with points increasing to 0.47 from 0.44 (including the origination fee) for loans with 20 percent down payments.
"Rates rose last week as investors looked past US-China trade tariffs and towards this week's Fed meeting," said Joel Kan, an MBA economist. "Treasury yields increased 8 basis points for the week, as the growth outlook for the US remained positive, and data on housing starts and home sales showed a reprieve after a few months of weak results."
Mortgage applications to purchase a home also rose 3 percent for the week and were 4 percent higher compared with the same week one year ago. More listings are finally coming onto the market, which may be helping to boost sales. Home prices are still very high and continue to rise, albeit at a slower pace than they did earlier this year.
Given the high demand for housing, mortgage volume should be considerably higher, but rising mortgage rates are eating away at already strained affordability. Freddie Mac is now forecasting total sales for 2018 will be slightly lower than last year.
"Unfortunately, too many would-be buyers continue to be tripped up by not enough affordable supply and the one-two punch of much higher home prices and mortgage rates," said Sam Khater, Freddie Mac's chief economist. "Prospective buyers are being squeezed the most where demand is the strongest: the entry-level portion of the market. While price appreciation is welcomingly starting to ease in many markets, weakening affordability continues to hamper overall activity."