Mortgage Loan Originators

Spike in Mortgage Rates Dampens Consumer Demand

Posted on Monday, February 14, 2011

Fewer consumers filed applications for a new mortgage last week as interest rates on home loans jumped to a 10-month high. Based on data from the Mortgage Bankers Association (MBA), the average rate on a 30-year fixed mortgage spiked more than 30 basis points in one week’s time.
MBA said Wednesday that its measurement of total mortgage loan application volume fell 5.5 percent for the week ending February 4, 2010, when compared to one week earlier.
The trade group’s refinance index declined 7.7 percent from the previous week. The refinance share of mortgage activity decreased to 66.6 percent of total applications, compared to 69.3 percent the one week earlier. MBA says this is the lowest refinance share observed in its survey since the beginning of May 2010.
Applications for home purchases also declined last week, but the drop was less pronounced than it was among homeowners refinancing. MBA’s purchase index decreased 1.4 percent from a week earlier.
“Refinance volume continues to be low, as fewer homeowners with equity have any incentive to refinance,” said Michael Fratantoni, MBA’s VP of research and economics. “We are at the beginning of the spring buying season, but purchase volume remains weak on a seasonally adjusted basis.”
Fratantoni also noted that mortgage rates increased last week as many incoming economic indicators continue to show stronger growth than had been anticipated.
According to MBA’s analysis, the average contract interest rate for 30-year fixed-rate mortgages increased to 5.13 percent last week, up from 4.81 percent the week before. This is the highest contract 30-year rate recorded in MBA’s survey since the week ending April 9, 2010. The 32 basis point jump is the largest rate increase since June 2009.
The average contract interest rate for 15-year fixed-rate mortgages also increased, from 4.13 percent the week prior to 4.29 percent last week. This is the highest contract 15-year rate recorded by MBA since the week ending May 7, 2010.
Paul Dales, senior U.S. economist for Capital Economics, says his firm is forecasting economic growth and inflation to slow again later this year, which will result in both Treasury yields and mortgage rates falling back.
“But this is unlikely to bring the housing market back to life either, as poor economic conditions and previous asset price falls are preventing households from taking on more debt,” Dales explained. “With demand for mortgage borrowing still so weak, it is hard to see housing activity strengthening much this year.”
By: Carrie Bay, DS NEWS

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