The year started out with a huge 49 percent surge in mortgage applications spurred by refinancing demand and sub-4 percent interest rates. Borrowing costs remain historically low, but mortgage activity has cooled off, with bankers reporting a sizable 9 percent drop last week in applications for both purchases and refinancing.
The Mortgage Bankers Association said Wednesday that their measure of loan application volume decreased 9 percent on a seasonally adjusted basis from one week earlier. The seasonally adjusted Purchase Index decreased 7 percent from one week earlier. The Refinance Index decreased 10 percent from the previous week.
The refinance share of mortgage activity decreased to 69 percent of total applications from 71 percent the previous week. The Federal Housing Administration’s share of total applications increased to 14.1 percent this week, from 13.1 percent last week, the MBA says.
Meanwhile, interest rates remain very attractive to existing home buyers looking to refinance or first-time homebuyers who now have more low-downpayment options with re-newed programs from Fannie Mae and Freddie Mac.
The average contract interest rate for 30-year fixed-rate mortgages, with conforming loan balances ($417,000 or less), increased to 3.84 percent, the highest level since Jan. 9, 2015, from 3.79 percent, for 80 percent loan-to-value ratio (LTV) loans. But rates generally have been falling from the 4.5 percent range late last year.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.72 percent from 3.69 percent for 80 percent LTV loans.
Interest rate observers are trying to project when the Federal Reserve’s policymakers will start raising the long-subdued federal funds rate, which helps set the tone for many consumer financial products, including mortgages. That rate has been “near zero” since September 2008.
Cheaper fuel and a strong jobs market are expected to boost consumer spending this year, possibly offsetting the Fed’s concerns about low inflation and convincing policymakers to start raising interest rates as soon as their June meeting. Projections for the benchmark rate’s hike start as early as this summer, but many economists say the Fed’s big move will start in the fall.