Higher Rates Push Mortgage Refinancing Into Sharp Decline

Interest ratesA leading indicator of mortgage applications dropped 11 percent last week, led by a significant drop in refinancing demand influenced by higher interest rates.
The Mortgage Bankers Association’s refinance index fell 16.9 percent compared to the previous week, dramatically overshadowing the slight .05 percent gain in the index that measures mortgage applications for the purchase of a home.  
The big motivator: interest rates. The average contract interest rate for 30-year fixed rate mortgages increased 5.31 percent from 5.04 percent for the week, the MBA said.
It is the highest 30-year rate since the MBA’s survey of August 2009.
The average contract interest rate for 15-year fixed-rate mortgages increased to 4.54 percent from 4.34 percent.
“Mortgage rates jumped last week as the Federal Reserve completed their purchases of mortgage-backed securities,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.  “Refinance application volume dropped as mortgage rates reached their highest level since August 2009.  Purchase volume was essentially unchanged relative to the prior week going into the Easter weekend.”
Fed officials referred to a depressed housing market in notes from the March 16 meeting of its Federal Open Market Committee that were released yesterday. Based on a moderate pace of economic recovery, the Fed maintained its near zero benchmark interest rate, repeating its “extended period” pledge.
“Activity in the housing sector appeared to have flattened out in recent months,” the Fed said. “Sales of both new and existing homes had turned down, while starts of single-family homes were about unchanged despite the substantial reduction in inventories of unsold new homes.”

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