Smart Borrower Blog

Rising Interest Rates Starting to Affect Mortgage Volume


Jun 26th, 2013 @ 1:18 PM by Amber Nelson


A recent forecast from mortgage giant Freddie Mac says rising mortgage rates are nothing to worry about, but the mortgage market said otherwise this week as total loan applications dropped.

During the week ended June 26, the Mortgage Bankers Association’s index of home loan applications fell 3.0 percent on a seasonally adjusted basis from the previous week, sinking to its lowest level in a year-and-a-half. Refinance demand decreased by 5.0 percent while home buying applications rose by 2.0 percent.

“Mortgage rates increased by the most in a single week since 2011, and refinance application volume dropped to its lowest level in almost two years,” said Mike Fratantoni, MBA’s Vice President of Research and Economics in a statement.

Still, the weekly decrease may just be a temporary knee-jerk reaction to rising interest rates.

“Applications for conventional purchase loans picked up by more than 3% over the week, and total purchase applications were 16% higher than one year ago, indicating that homebuyers are not yet dissuaded by the increase in mortgage rates,” Fratantoni added.

Freddie Mac’s vice president and chief economist Frank Nothaft concurred in a statement. “The recent upturn in interest rates is sparking fears among some that the nascent economic and housing recoveries will be choked off before they produce sustained growth. However, with the exception of high-cost markets, which are already challenged with affordability, house prices in most of the country are very affordable. So while rising interest rates will reduce housing demand, rates would have to increase considerably more before the reduction in demand for home purchases would be substantial. Nothing in the recent trends suggests that we need to fear a major slowdown. A gradual rise in interest rates will not derail the recovery, and are an indication that the overall economic situation is improving.”

What is likely in the coming months is a dramatic drop-off in refinance loan applications as rates rise above those that many current homeowners already have. And that may balance out overall mortgage applications for a short time.

About Amber Nelson
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.

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