After falling back earlier this month, mortgage rates started to rise again sharply to the highest level since mid-July. This caused demand for mortgages to retreat even more.
The total volume of mortgage applications fell 3.7% last week compared to the previous week, according to the Realkreditforeningen’s seasonally adjusted index. Volume was 63% lower than the same week a year ago.
The average contract rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.80% from 5.65%, with points increasing to 0.71 from 0.68 (including the origination fee) for loans with a decrease of 20% payment. It was 3.11% a year ago.
“Mortgage and Treasury yields rose last week as Federal Reserve officials indicated that short-term interest rates would remain higher for longer. Mortgage rates have been volatile over the past month, bouncing between 5.4 percent and 5 .8 percent,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
As a result, demand for refinancing, which is highly sensitive to weekly interest rate movements, fell another 8% for the week and was 83% lower than the same week a year ago. The refinancing share of mortgage activity fell to 30.3% of total applications from about 66% a year ago.
Home purchase mortgage applications fell 2% for the week and were 23% lower than the same week a year ago.
“Purchase applications have fallen in eight of the past nine weeks as demand continues to shrink due to higher prices and a weaker economic outlook,” Kan said. “However, rising inventories and slower home price growth could potentially bring some buyers back into the market later this year.”
House prices are still well above the level of a year ago, but they fell 0.77% from June to July. That was the first monthly decline in nearly three years, according to Black Knight, a mortgage software, data and analytics firm.
While the drop may seem small, it’s the biggest one-month drop in prices since January 2011. It’s also the second-worst July performance dating back to 1991, behind the 0.9% drop in July 2010 during the Great Recession.
Due to the recent volatility in mortgage rates, the spread between jumbo and conforming loan rates widened again. Jumbos, which used to have higher interest rates due to the size of the loans, are now 48 basis points lower than conforming loans. That spread went over 50 basis points in July. This is probably because jumbos are not backed by the government, which has a stricter risk tolerance, but are held on bank balance sheets. The banks are desperate for mortgage business right now.