A brief roller coaster ride for mortgage rates caused yet another swing in demand. After dropping to a three-year low two weeks ago, rates then shot right back up again.
As a result, total mortgage application volume dropped 12.7% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. The drop was mostly driven by a pullback in refinancing.
Applications to refinance a home loan fell 21% for the week and were 16% higher than the same week one year ago. This, even though mortgage rates were 32 basis points higher last week than the year before. The refinance share of mortgage activity decreased to 55% of total applications from 60% the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $806,500 or less, increased to 6.46% from 6.34%, with points increasing to 0.61 from 0.57, including the origination fee, for loans with a 20% down payment.
“Mortgage rates increased to its highest level in three weeks as Treasury yields pushed higher on recent, stronger than expected economic data. After the burst in refinancing activity over the past month, this reversal in mortgage rates led to a sizeable drop in refinance applications, consistent with our view that refinance opportunities this year will be short-lived,” said Joel Kan, MBA’s vice president and deputy chief economist.
Refinance activity pulled back for all loan types, including a 22% drop in conventional refinances and a 27% drop in VA refinances. The average loan size for refinances dropped to $380,100 from $461,300 two weeks ago, “as these higher rates eliminated the refinance incentive for many borrowers with large loans,” added Kan.
Applications for a mortgage to purchase a home fell 1% for the week and were 16% higher than the same week one year ago. This is after three consecutive weeks of gains.
“The strength of the purchase market has also been impacted by other factors such as broader economic conditions, the health of the job market, and housing inventory,” said Kan.
Housing inventory in August fell for the first time since the beginning of this year, according to a recent report from the National Association of Realtors. While homes are sitting on the market longer now, keeping supply higher than a year ago, more sellers are starting to delist their properties. Other potential sellers are choosing to wait for a better market.
Mortgage rates haven’t moved at all at the start of this week. The expectation was that rates could move more decisively on Friday, when the monthly employment report was set for release, but the government shutdown now has that in limbo.