Refinance Applications Fall to 20-year Low
Jul 5th, 2018 @ 8:54 AM by Amber Nelson
Even though mortgage interest rates dropped in the latest week, home loan requests also decreased, with refinance applications dropping to one of their lowest readings in 20 years, according to the Mortgage Bankers Association.
“Financial market volatility in response to continued worries about trade resulted in both lower mortgage rates and a drop in applications last week,” said Mike Fratantoni, MBA chief economist.
The MBA’s composite index – a measure of total mortgage application volume – fell 4.9% in the past week, with home purchase requests falling 6% and refinance applications down 4%. Of all mortgage activity last week, refinances made up 37.6%, an increase from 36.8% the previous week.
While interest rates have dropped off a little in the past month, mortgage rates are still around 4.5% and with half of all U.S. homeowners having a current loan with rates below 4%, refinancing volume is going to remain low for some time. For those who want to use their growing home equity for other projects, a second loan or home equity line of credit will probably be the more popular options.
Some types of home loans did see increases in application volume. “A shortage of inventory remains a significant constraint, but it is interesting to note that applications for government purchase loans fared better on the week, indicating that first-time buyers remain in the market,” said Fratantoni.
Government-backed FHA loans made up 10.2% of all mortgage applications, up from 10.1% the previous week. VA loan requests grew to 10.7% of the total, up from 10.2% a week ago and USDA home loans inched up to an 0.8% share of all mortgage requests, up from 0.7% the prior week. These loans are often used by first-time buyers as they allow lower down payments and other favorable terms.
Fewer borrowers wanted an adjustable rate mortgage (ARM) this week. The ARM share of loan applications fell to 6.5% of the total, down from 7.0% the week before.
Amber Nelson is a seasoned mortgage industry writer and a regular contributor to Loan.com and Mortgage101.com.