A sudden spike in mortgage rates caused an abrupt end to the recent refinance boom, pushing total mortgage application volume down 8.4% last week from the previous week, according to the Mortgage Bankers Association.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 3.74% from 3.47%, with points increasing to 0.37 from 0.27 (including the origination fee) for loans with a 20% down payment.
As a result, applications to refinance a home loan fell 10% from the previous week but were still 402% higher than a year ago, when rates were 81 basis points higher. The refinance share of mortgage activity decreased to 74.5 percent of total applications from 76.5 percent the previous week, according to the MBA's seasonally adjusted index.
"The ongoing situation around the coronavirus led to further stress in the financial markets late last week, with unprecedented volatility and widening spreads. This drove mortgage rates back up to their highest levels since mid-February," said Joel Kan, an MBA economist. "The Federal Reserve's rate cut and other monetary policy measures to help the economy should help to bring down mortgage rates in the coming weeks, spurring more refinancing."
Mortgage applications to purchase a home fell 1% for the week but were 11% higher than a year ago.
"The purchase market was on firm footing to start the year and has so far held steady through the current uncertainty," Kan said. "Looking ahead, a gloomier outlook may cause some prospective homebuyers to delay their home search, even with these lower mortgage rates."
Mortgage rates came back down at the start of this week, after the Federal Reserve announced a cut to its rates and the White House announced a stimulus plan for the economy. They are not, however, back down to the record levels seen just a few weeks ago.