Mortgage applications decrease as rising rates temper refi volume

Mortgage applications decreased 1.9% from one week earlier as rising rates started to affect refinance activity, according to the Mortgage Bankers Association.

Still, refinancings predominate the market. The MBA’s Weekly Mortgage Applications Survey for the week ending Jan. 15 found that while the refinance index decreased 5% from the previous week, it was 87% higher than the same week one year ago. The refinance share of mortgage activity decreased to 72.3% of total applications from 74.8% the previous week.

“Mortgage rates increased across the board last week, with the 30-year fixed rate rising to 2.92% — its highest level since November 2020 — and the 15-year fixed rate increasing for the first time in seven weeks to 2.48%. Market expectations of a larger than anticipated fiscal relief package, which is expected to further boost economic growth and lower unemployment, have driven Treasury yields higher the last two weeks,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said in a press release. “After a post-holiday surge of refinances, higher rates chipped away at demand. There was a 5% drop in refinance activity, driven by a 13.5% pullback in government refinances.”

The seasonally adjusted purchase index increased 3% from one week earlier, while the unadjusted purchase index increased 9% compared with the previous week and was 15% higher than the same week one year ago.

“Homebuyers in early 2021 continue to seek newer, larger homes. The average loan size for purchase loans jumped to $384,000, the second highest level in the survey,” Kan added. The average purchase loan size one week ago was $374,700.

Adjustable-rate mortgage activity increased to 2.1% from 1.6% of total applications, while the share of Federal Housing Administration-insured loan applications decreased to 9.3% from 9.6% the week prior.

Veterans Affairs-guaranteed loans saw their share decreased to 13.8% from 15.8% and the U.S. Department of Agriculture/Rural Development share remained unchanged from 0.4% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased 4 basis points to 2.92%. For 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400), the average contract rate increased 2 basis points to 3.19%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased 8 basis points to 3.01%. For 15-year fixed-rate mortgages, the average increased 9 basis points to 2.48%. The average contract interest rate for 5/1 ARMs increased to 2.76% from 2.66%.