Mortgage Demand Takes Another Dip as Rates Climb

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For 30-year fixed-rate mortgages with conforming loan sums ($647,200 or less), the average contract interest rate rose from the previous week’s 5.65% to 5.80% last week.
Mortgage applications for house purchases fell 2% for the week and were 23% lower than they had been during the same week last year.
From roughly 66% of all mortgage applications a year ago, the refinancing portion of mortgage activity fell to 30.3% of all applications.

Image Source- Yahoo Finance

Mortgage rates started climbing steeply again this month after declining earlier in the month, reaching their highest point since mid-July. The demand for mortgages decreased as a result.

The total number of mortgage applications dropped 3.7% last week as compared to the week before, according to the seasonally adjusted index from the Mortgage Bankers Association. Volume decreased by 63% over the same week last year.

For loans requiring a 20% down payment and conforming loan sums ($647,200 or less), the average contract interest rate rose from 5.65% to 5.80%, while the number of points climbed from 0.68 to 0.71 (including the origination fee). That rate was 3.11% one year ago.

Mortgage rates and Treasury yields increased last week as a result of comments made by Federal Reserve officials that short-term rates would continue to rise. According to Joel Kan, MBA’s assistant vice president of economic and industry forecasts, mortgage rates have been fluctuating over the past month, swinging between 5.4 percent and 5.8 percent.

With points rising to 0.71 from 0.68 (including the origination charge) for loans with a 20% down payment, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan amounts ($647,200 or less) climbed to 5.80% from 5.65%. One year ago, that rate was 3.11 percent.

“As Federal Reserve officials suggested that short-term rates will remain higher for longer, mortgage rates and Treasury yields increased last week. In the previous month, mortgage rates have fluctuated between 5.4 percent and 5.8 percent, according to Joel Kan, MBA’s assistant vice president of economic and industry forecasts.

Home prices did drop from June to July by 0.77%, but they are still much higher than they were a year ago. Black Knight, a company that develops mortgage software and provides data and analytics, said that it was the first monthly decline in nearly three years.

Despite appearing minor, the decrease represents the biggest one-month drop in costs since January 2011. Aside from the 0.9% decline in July 2010 during the Great Recession, it is also the second-worst July result since records began in 1991.

The difference between jumbo and conforming loan rates has once more increased due to the recent volatility in mortgage rates. Jumbo loans, which historically had higher rates because of their larger size, now have rates that are 48 basis points less than conforming loans. In July, that margin exceeded 50 basis points. This is probably because jumbos are kept on bank balance sheets rather than being guaranteed by the government, which has a stronger risk tolerance policy. Currently, banks are in severe need of mortgage business.

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