After a rough month for mortgage rates, borrowers saw a sign of hope and pounced: A small dip in the 30-year fixed rate lit a fire under refinances.
That pushed total mortgage application volume up 8% for the week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 58% higher than a year ago, when refinances were incredibly weak.
After rising sharply over the previous two weeks, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 3.99% from 4.02%, with points remaining at 0.38 (including the origination fee) for loans with a 20% down payment. The rate was 97 basis points lower than a year ago.
The rate reversal was enough to push refinance volume 14% higher for the week and 133% higher from one year ago. The gain may have been less about the tiny dip and more about borrowers seeing rates move higher in the previous weeks and worrying that they would miss out on the lowest rates. Lenders say they often see more refinance applications just as rates start to rise, because borrowers who had been waiting for rates to move even lower decide to get off the fence.
"Although refinance activity slowed in September compared to August, the months together were the strongest since October 2016. The slight changes in rates are still causing large swings in refinance volume, and we expect this sensitivity to persist," said Joel Kan, MBA's associate vice president of economic and industry forecasting.
Mortgage applications to purchase a home rose just 1% for the week but were 10% higher annually. The fall housing market is benefiting from lower rates but suffering from a lack of homes for sale, especially at entry-level prices.
While the number of purchase applications was 10% higher annually, the dollar volume of those applications was nearly 17% higher, suggesting that the action in the purchase market is at a higher price than a year ago. Sales of homes priced at the lower end of the market fell in August compared with last year, according to the National Association of Realtors, but sales of homes priced above $500,000 saw big gains. There is simply more for sale in the move-up market than at the entry level, and buyers there are less sensitive to small changes in mortgage rates.
Mortgage rates started this week even lower, but that could change with the release of the all-important monthly employment report on Friday as well as other economic data in the days before then.