A turnaround in interest rates turned borrowers back on their heels last week, deflating a quick boom in refinance demand.
Mortgage application volume fell 5.6% from the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Applications were still 24% higher compared with the same week one year ago, thanks to the recent run-up in refinances.
The quick shifts are indicative of just how rate-sensitive today's borrowers and buyers are. After falling for four straight weeks to the lowest level in over a year, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) bounced back up to 4.40% from 4.36%, with points increasing to 0.47 from 0.44 (including origination fee) for loans with a 20% down payment.
The sharp drop in mortgage rates in the past month had caused a huge jump in refinances, but those applications fell 11 percent last week. Mortgage rates are still a quarter of a percentage point lower than they were a year ago, but so many borrowers have already refinanced at even lower rates that the pool of potential applicants is tiny. Applications were 42% higher than a year ago, but again, given the minuscule base of applications, the percentage moves are skewing larger.
"As quickly as refinance activity increased in recent weeks, it backed down again in response to the rise in rates," said Mike Fratantoni, MBA's chief economist. "However, this spring's lower borrowing costs, coupled with the strong job market, continue to push purchase application volume much higher."
Mortgage applications to purchase a home increased 1 percent from the previous week and were 13% higher than a year ago. Applications for buyers of newly built homes are also rising. The MBA reported a 7% annual jump in March and an interesting shift in the size of loans for which buyers were applying.
"The drop in average loan size suggests that builders are tilting production to lower-priced homes, which continues to see the tightest inventories and strongest home-price growth," said Fratantoni.