Real Estate

Mini refinance boom goes bust, as mortgage rates turn higher

Key Points
  • The average contract interest rate for 30-year fixed-rate mortgages rose to 3.94% from 3.90% last week.
  • That pushed applications to refinance a home loan down by 8%.
  • Mortgage applications to purchase a home fell 4% for the week.
Prospective home buyers tour a house for sale with their realtor in Machinaw, Illinois.
Daniel Acker | Bloomberg | Getty Images

It didn't take much to end the party in the refinance market.

A small tick higher in mortgage rates caused the sudden surge in refinances to retreat just as quickly. That pushed total mortgage application volume down 6.2% last week, compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 66% higher annually, as rates were still higher last year.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 3.94% from 3.90%, with points increasing to 0.38 from 0.35 (including the origination fee) for loans with a 20% down payment. The rate was 84 basis points lower than a year ago and 14 basis points lower than four weeks earlier.

"U.S. Treasury yields were volatile over the course of the week, as the ongoing trade dispute between the U.S. and China continued to generate uncertainty among investors," said Joel Kan, MBA's associate vice president of economic and industry forecasting. "Rates increased for the first time since the week of July 12."

Despite that, mortgage applications to refinance a home loan fell 8% for the week. They were still 167% higher than a year ago, proving how volatile the weekly moves are despite rates being lower. The refinance share of mortgage activity decreased to 62.4 percent of total applications from 62.7 percent the previous week

Mortgage applications to purchase a home, which are less sensitive to rate changes, fell 4% last week and were just 2% higher than a year ago.

"The drop in rates this summer have not yet led to a significant boost in activity. Uncertainty over the near-term economic outlook and low supply [of homes for sale] continue to be the predominant headwinds for prospective homebuyers," Kan said.

Consumer confidence in the housing market is still high, according to a monthly Fannie Mae survey, but there is a shortage of homes for sale on the low end of the market, where demand is strongest. That is where home prices are still rising fastest and borrowers have less wiggle room in their wallets. At the higher end, where listings are more plentiful, potential buyers are more sensitive to the latest swings in the stock market and the overall concern over a potential recession.

VIDEO1:4101:41
What the 'Predictably Irrational' author says not to do when the stock market tanks