The sign of a home’s real estate for sale shows that the home was in Washington DC on November 19, 2020.
Saul Loeb | AFP | Getty Images
Higher mortgage rates cut in on the demand for refinancing, as fewer and fewer lenders can now save worth it.
Applications to refinance a home loan fell by 4% for the week and are 39% lower compared to the same week a year ago, according to the seasonally adjusted index of the mortgage lenders association. Just a few months ago, the refinancing volume was more than 100% higher than the previous year. In addition, the refinancing share of mortgage activities decreased to 62.9% of total applications from 64.5% the previous week.
The decline is due to higher interest rates, which last week reached the highest level since June 2020. The average interest rate for 30 years fixed loans with fixed loans and corresponding loan balances ($ 548,250 or less) rose to 3.28% from 3.26% with points falling to 0.41 from 0.43 (the original fee included) for loans with a 20% down payment.
“After the refinancing index peaked recently in the last week of January, it has since fallen 26 percent to its lowest level since September 2020,” said Joel Kan, an MBA economist. “Rates have risen by 36 basis points since the end of January, and refinancing activities fell in all types of loans last week.”
According to Black Knight, more than half of all lenders currently have rates below 4%. Rates reached more than a dozen record lows last year, but rose gradually this year as the economy recovered from the coronavirus pandemic. Rates have risen even further to start this week, but that could take a turn according to the news from the Federal Reserve on Wednesday in its latest policy announcement.
Mortgage applications to purchase a home, which is less sensitive to weekly rate changes, increased by 2% for the week and were 5% higher than the same week a year ago.
“The buying market has helped offset the decline in refinancing … as labor market recovery and demographic factors drive demand, despite ongoing supply and affordability constraints,” Kan said.
Buyers are also starting to hit an affordable wall as house prices rise with a quick cut for both new and existing homes. Mortgage applications for newly built homes fell by 9% month-on-month in February, as rates have certainly started to rise.
MBA’s estimate of new home sales of 748,000 units is the slowest annual rate since May last year. This comes after seven consecutive months of a sales pass of 800,000 plus units.
The average loan size for newly built homes has also risen to a record high of more than $ 370,000, as total house stock levels are consistently low and house prices are rising.