Surge in Refinancing Drives Weekly Mortgage Demand Increase
Last week, mortgage rates increased, along with the demand for refinances, which seems counterintuitive. According to the Mortgage Bankers Association, applications to refinance a home loan rose by 13% compared to the previous week. However, the volume of applications was still 29% lower than the same week the previous year.
Typically, refinancing demand moves in the opposite direction of mortgage rates, but this was not the case last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 7.31% from 7.27%, with points remaining unchanged from 0.72 (including the origination fee) for loans with a 20% down payment.
There are a couple of possible explanations for this trend. Borrowers might be concerned that rates could continue to rise, leading them to act promptly. Additionally, the number of refinances might be relatively small at the moment, meaning even a slight change can result in a significant percentage move.
Meanwhile, applications for a mortgage to purchase a home increased by 2% for the week but were 26% lower than the same week the previous year. Joel Kan, an economist at the MBA, mentioned that purchase applications increased for conventional and FHA loans, but homebuyers continue to face challenges due to higher rates and limited inventory.
With home prices on the rise again, the average loan size for purchase applications reached $416,800, the highest level in six weeks. Demand might be returning, as more homes have recently become available on the market. However, the overall supply of homes remains low, leading to bidding wars.
As investors await the results of the Federal Reserve meeting and the future of interest rates, mortgage rates have remained relatively stable this week, awaiting commentary from Chair Jerome Powell.