Higher mortgage rates do not appear to be dampening demand for home purchases but are crimping refinance volume.
Mortgage applications to purchase a home rose 3% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. That is the fourth straight week of gains. Volume was 26% higher than a year ago. Annual comparisons, however, will likely get very large over the next month because homebuying stalled at the start of the pandemic one year ago.
“Purchase applications were strong over the week, driven both by households seeking more living space and younger households looking to enter homeownership,” said Joel Kan, an MBA economist. “The average purchase loan balance increased again, both by quickening home-price growth and a rise in higher-balance conventional applications.”
Kan warned that as prices rise further and mortgage rates continue higher, “we may see affordability challenges become more severe if new and existing supply does not significantly pick up.”
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.36% from 3.28%, for loans with a 20% down payment. That is the highest since last July.
“Mortgage rates have moved higher in tandem with Treasury yields, as the outlook for the U.S. economy continues to improve amidst the faster vaccine rollout and states easing pandemic-related restrictions,” Kan said.
The rate is now up more than 50 basis points, or half a percentage point, since the start of the year, reducing the potential savings from a refinance.
Mortgage applications to refinance a home loan decreased 5% for the week and were 13% lower than a year ago. That was the slowest pace since September, with declines in conventional and government applications. The refinance share of mortgage activity decreased to 60.9% of total applications from 62.9% the previous week.
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