While mortgage interest rates dipped ever so slightly in the last week, they’ve been trending up for the majority of this year. In fact, the interest rate on a 30-year, fixed-rate mortgage is now more than half a percentage point higher than it was back in January.
And it appears that the consistent rise in interest rates this year has all but dried up refinance demand.
Is it time to say goodbye to refis for a while? It certainly looks that way.
A new report from Ellie Mae shows that purchase loans are now approaching 75% of all mortgages, with refis hovering around historic lows.
Ellie Mae’s latest Origination Insight Report shows that the 71% of all loans closed in July were purchase loans, while only 29% of the closed loans were refinances.
That’s the second month in a row that refis have been that low (and purchases that high).
Those figures also represent the lowest percentage of refis (or highest percentage of purchases, depending on how you look at it) since Ellie Mae began tracking this data in 2011.
To put it another way, refis haven’t been this small of a percentage of overall originations in seven years.
And the trend doesn’t appear to be going away anytime soon.
According to Ellie Mae’s report, refis made up 45% of all originations back in January, when mortgage rates were in the low 4% range. Since then, refis have dropped as interest rates have risen as fewer borrowers have the incentive to refinance.
According to Ellie Mae’s report, refis dropped from 45% in January, to 43% in February, to 38% in March, to 34% in April, to 30% in May, and were at 29% in both June and July.
Over that same time period, interest rates rose by more than 50 basis points.
The drop is seen most dramatically in conventional loans, where the refi share has dropped from 51% in January down to 31% in July. The decreases are smaller but still noticeable in both Federal Housing Administration and Department of Veterans Affairs lending.
For FHA loans, the refi share fell from 28% in January to just 19% in July. In VA lending, the refi share dropped from 34% to 25% since the beginning of the year.
And don’t look for the trend to reverse itself, according to Jonathan Corr, president and CEO of Ellie Mae.
“The purchase market remained solid in July and as we see inventories rise, we might begin to see a transition to a buyer’s market,” Corr said. “The summer home buying season is still in full swing and while interest rates have risen, we expect to see a continued increase in purchase percentages.”
Could purchases tick even higher, as Corr suggests? The trend line would certainly lead one to believe that’s the likely outcome.
There was a little bit of good news on the refi front in this week’s Mortgage Bankers Association’s Weekly Mortgage Applications Survey, which showed that the refinance share of mortgage application activity increased from last week’s 36.6% to 37.6%.
But that may just be a blip on the radar as interest rates are expected to continue climbing this year.
And while today’s interest rates are still low by historic standards, they’re still higher than many younger homeowners have seen in their adult lives. Those borrowers aren’t going to refi their 3.95% mortgage into a 4.75% right now, and they certainly won’t do it if rates keep going up, no matter how much their home is worth now.
Welcome to the new normal.