Mortgage Applications Fall As Rates Climb
Mar 23rd, 2016 @ 8:16 PM by Amber Nelson
After six weeks of ultra-low interest rates, a small increase led to fewer refinances and home purchases in the latest week, according to the Mortgage Bankers Association.
The MBA’s Market Composite Index, a measure of total loan application volume, fell 3.3 percent during the week ended March 18, 2016. Home purchase loan requests declined by just 1 percent from the week before as limited housing inventory continued to stymy buyers. The real drag on applications though was the drop in refinancing. Refinance applications sank 5 percent and were also down 4.5 percent from the same week of 2015.
As rates rose above 3.7 percent for the first time in six weeks, borrowers were less excited about the saving from refinancing. The average rate for a 30-year fixed-rate mortgage reached 3.73 percent, excluding fees, according to mortgage backer Freddie Mac, up from 3.685 percent the previous week.
“There are fewer borrowers remaining who are able to benefit from low rates,” said Lynn Fisher, MBA’s vice president of research and economics. “The decline in average refinance loan size is also a feature of a declining refinance market. Borrowers with larger loan balances tend to be more rate-sensitive. As refinance applications surge, average loan size tends to go up. As we return to a more normal level of refinance applications, the mix of borrowers returns to normal and average loan size declines.”
Refinance requests made up just 53.9 percent of all applications in the latest week, down from a 55.0 percent share the week prior.
Mortgage borrowers turned to government-backed loans in greater numbers as well. FHA loan applications made up 11.8 percent of the total, a slight increase from 11.7 percent the previous week. The VA share of loan applications grew to 12.6 percent from 12.3 percent and the USDA share rose to 0.9 percent from 0.8 percent.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.