Mortgage applications drop 3.3% on fewer refinances
Higher interest rates pushed mortgage refinancing activity down further last week, and home buying isn't picking up the slack.
Total mortgage application volume fell 3.3 percent on a seasonally adjusted basis for the week from the previous week, according to the Mortgage Bankers Association. It is nearly 21 percent higher than the same week one year ago.
A 6 percent drop in refinance volume was behind the weekly drop. Refinance activity has been falling steadily for the past month, now dipping to its lowest level since August. Mortgage interest rates are still historically low, but they did rise last week.
The average contract interest rates for 30-year fixed rate mortgages with conforming an balances ($417,000 or less) increased to 3.94 percent from 3.89 percent, with points increasing to 0.42 from 0.38 (including the origination fee) for 80 percent loan-to-value ratio loans. The slight rate increases over the last few weeks have pushed gun-shy borrowers into fixed-rate loans. Applications for adjustable rate mortgages are down 68 percent from a year ago.
"Financial market volatility subsided last week, allowing rates to increase to levels last seen in January," said Lynn Fisher, MBA's vice president of research and economics. "Even though mortgage rates have remained below 4 percent, the appetite to refinance has consistently declined over the last month. Relatively low rates should continue to assist the purchase market,"
Mortgage applications to purchase a home were basically flat, increasing 0.3 percent for the week, on a seasonally adjusted basis. They are, however, 33 percent higher than the same week one year ago and are at the highest level since January.
Part of the increase in purchase applications over last year may be the fact that there are fewer all-cash buyers in today's market. Large investors have decreased the number of homes they're buying, and smaller investors are more likely to use loans. Home buying has increased, although not at the rate expected, given so much pent-up demand. The culprit is simply a lack of homes for sale.
Wednesday afternoon's announcement from the Federal Reserve Board's Open Market Committee could push interest rates in a more decisive direction, up or down, even though it is widely expected that rates will remain unchanged. This announcement is an opportunity to shed more light on the Fed's strategy for monetary policy.
"In addition to the announcement itself, investors are anxious to see how the Fed's economic projections have evolved in light of the market volatility seen during the first quarter," said Matthew Graham, chief operating officer of Mortgage News Daily. "There's no question that the average FOMC member will see fewer rate hikes in 2016, but if the Fed's consensus is significantly different than the market consensus (which currently sees between 1 and 2 rate hikes by the end of the year), the market reaction will be bigger."