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How rate sensitive are borrowers? Slight uptick in interest rates leads to decline in mortgage applications

MBA report shows mortgage applications fell in last week

Are mortgage borrowers sensitive to small movements in interest rates? Recent data shows that refinances are on the rise thanks to the low interest rates of the last few weeks, but what happens if mortgage rates start to move back up? Will that demand dry up just as quickly as it appeared, even if rates only pick up by a few basis points?

It appears that may be the case, as new data from the Mortgage Bankers Association shows that mortgage applications fell for the second straight week as mortgage rates increased for the first time in more than a month.

According to the MBA’s Weekly Mortgage Applications Survey for the week ending Aug. 23, 2019, mortgage applications fell by 6.2% on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, the Market Composite Index, a measure of mortgage loan application volume, fell 7% compared with the previous week.

Interestingly, the decline was seen across both purchase and refinance applications, perhaps indicating that borrowers, especially those looking to refinance, are paying close attention to mortgage rates.

“U.S. Treasury yields were volatile over the course of the week, as the ongoing trade dispute between the U.S. and China continued to generate uncertainty among investors,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Rates increased for the first time since the week of July 12, but were still 80 basis points lower than the beginning of the year,” Kan added. “With rates edging higher, refinances and purchase applications fell, at 8% and 6%, respectively.”

As Kan noted, the Refinance Index fell 8% from the previous week, but was still 167% higher than the same week one year ago.

After rising to a three-year high last week, the refinance share of mortgage activity decreased to 62.4% of total applications, down from 62.7% last week.

The MBA report also showed that the seasonally adjusted Purchase Index decreased 4% from last week. Meanwhile, the unadjusted Purchase Index decreased 6% when compared with the previous week.

“Purchase applications were still up around 2% year-over-year last week, but the drop in rates this summer have not yet led to a significant boost in activity,” Kan said. “Uncertainty over the near-term economic outlook and low supply continue to be the predominant headwinds for prospective homebuyers.”

Here's a more detailed breakdown of this week's mortgage application data:

  • The adjustable-rate mortgage share of activity fell to 6.1% of total applications.
  • The Federal Housing Administration's share of mortgage apps continued to increase, rising from 9.7% last week to 10.5% this week.
  • The Department of Veterans Affairs' share of applications fell to 9.9% from last week’s 11.6%.
  • The Department of Agriculture's share of total applications held steady from last week’s 0.5%.
  • Mortgage interest rates for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased from last week’s rate of 3.9% to 3.94%.
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $484,350) ticked up ever so slightly from 3.88% to 3.89% this week.
  • The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA fell from 3.87% to 3.8%.
  • The average contract interest rate for 15-year fixed-rate mortgages grew from last week’s 3.3% to 3.31%.
  • The average contract interest rate for 5/1 ARMs increased from 3.35% last week to 3.42%.

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