Mortgage rates started climbing steeply again this month after declining earlier in the month, reaching their highest point since mid-July. As a result, the demand for mortgages decreased even further.
The total number of mortgage applications dropped 3.7% last week as compared to the week before, according to the seasonally adjusted index from the Mortgage Bankers Association. Comparing the same week from a year earlier, volume was 63% lower.
For loans requiring a 20% down payment, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances (i.e., $647,200 or less) rose from 5.65% to 5.80%, while the points (including origination fees) increased from 0.68 to 0.71. One year ago, that rate was 3.11%.
“Mortgage rates and Treasury yields rose last week as Federal Reserve officials indicated that short-term rates would stay higher for longer. Mortgage rates have been volatile over the past month, bouncing between 5.4 percent and 5.8 percent,” Joel Kan, the MBA’s assistant vice president for industry and economic forecasts, said.
As a result, the demand for refinances, which is quite sensitive to changes in weekly interest rates, decreased by 8% for the week and was 83% lower than it was during the same week last year. From roughly 66% of all mortgage applications a year ago, the refinance portion of mortgage activity fell to 30.3% of all applications.
Mortgage applications to buy a home fell 2% for the week and were 23% lower than they were during the same week a year earlier.
“Purchase applications have declined in eight of the last nine weeks, as demand continues to shrink due to higher rates 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.”
Home prices did drop from June to July by 0.77%, but they are still significantly higher than they were a year ago. Black Knight, a company that develops mortgage software and provides data and analytics, said that it was the first monthly decline in nearly three years.
Despite appearing minor, the decrease represents the biggest one-month drop in costs since January 2011. Aside from the 0.9% decline in July 2010 during the Great Recession, it is also the second-worst July result since records began in 1991.
The difference between jumbo and conforming loan rates has once more increased due to the recent volatility in mortgage rates. Jumbo loans, which historically had higher rates because of their larger size, now have rates that are 48 basis points less than conforming loans. In July, that margin exceeded 50 basis points. This is probably because jumbos are kept on bank balance sheets rather than being guaranteed by the government, which has a stronger risk tolerance policy. Currently, banks are in severe need of mortgage business.