Mortgage rates rose at the fastest rate in over a year last week, throwing cold water on already cooling demand.
The total volume of mortgage applications was essentially unchanged for the week, increasing only 0.5% according to the Mortgage Bankers Association’s seasonally adjusted index.
The average contract rate for 30-year fixed rate mortgages with compliant loan balances ($ 548,250 or less) increased from 3.08% to 3.23%, with credit points decreasing 20% from 0.46 (including the origination fee) increased to 0.48% payment. The rate was 34 basis points lower a year ago, but that year-on-year comparison has steadily shrunk. Last fall, mortgage rates were 100 basis points lower than a year earlier.
“Mortgage rates rose last week on market expectations of stronger economic growth and higher inflation,” said Joel Kan, MBA’s vice president of economic and industrial forecasting. “The 30-year fixed rate saw its largest increase in a week in almost a year and its highest value [level] since July 2020. “
Home loan refinancing requests, which are most sensitive to weekly interest rate changes, grew 0.1% for the week and were only 7% higher than a year ago. For comparison: The refinancing volume in mid-December was over 100% higher than in the previous year.
The refinancing share of mortgage activity decreased from 68.5% in the previous week to 67.5% of the total applications.
Home purchase mortgage applications rose 2% over the week and were only 1% higher than a year ago. Homebuyers face an expensive and lean real estate market as home builders struggle to meet demand and potential sellers pull out. As mortgage rates rise, affordability will continue to weaken, but more first-time buyers seem to be venturing out.
“The property market is entering the busy spring buying season with strong demand. Purchase requests have increased, with government requests – likely first-time buyers – lowering the average loan size for the first time in six weeks,” Kan said.
Mortgage rates pulled back a bit earlier this week as the 10-year Treasury yield fell. Mortgage rates easily follow this return.
“There have been six months in the past two decades when mortgage rates have risen by at least 50 basis points, and February 2021 was one of them,” said Matthew Graham, COO of Mortgage News Daily. “In other words, it’s been a really bad month for interest rates – so bad that it made increasingly sense to seek relief just because things haven’t been that bad for that long.”