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Mortgage rate increases push refinance share lower

Purchase applications rose slightly

Mortgage applications increased 0.3% from last week, per the latest report from the Mortgage Bankers Association for the week ending Oct. 22, 2021.

With two consecutive weeks of mortgage rates over 3%, refinances continued to retreat. The refinance share of mortgage activity decreased to 62.2% of total applications, down from 63.3% the week prior. The refinance index was down 2% from the week prior, a staggering 26% lower than it was the same week last year.

“Mortgage rates increased again last week, as the 30-year fixed rate reached 3.30% and the 15-year fixed rate rose to 2.59% – the highest for both in eight months. The increase in rates triggered the fifth straight decrease in refinance activity to the slowest weekly pace since January 2020. Higher rates continue to reduce borrowers’ incentive to refinance,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Purchase applications picked up slightly, and the average loan size rose to its highest level in three weeks, as growth in the higher price segments continues to dominate purchase activity,” Kan said. “Both new and existing-home sales last month were at their strongest sales pace since early 2021, but first-time home buyers are accounting for a declining share of activity.”

Home prices have continued their rapid rise, and a lack of housing supply constrains the purchase market. The latest S&P CoreLogic Case-Shiller National Home Price Index, released on Tuesday, showed a 19.8% annual gain for the year ending in August 2021, remaining the same as the previous month. The annual rate of housing price growth is the highest since the index was introduced, in 1987.

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“Home prices are still growing at a rapid clip, even if monthly growth rates are showing signs of moderation, and this is constraining sales in many markets, and particularly for first-timers,” said Kan.

The adjustable-rate mortgage share of activity decreased to 3.1% of total applications. The Federal Housing Administration share of total applications increased two basis points from the week prior, reaching 10.4%, and the Department of Veterans Affairs’ share of total applications also increased slightly, to 10.6% from 10.4%. The USDA share of total applications stood unchanged from 0.5% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, those with balances at $548,250 or less, increased to 3.30% from 3.23%.

The average contract interest rate for 30-year fixed-rate mortgages for jumbo loans, those with balances greater than $548,250, increased to 3.34% from 3.26%. The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased to 3.31% from 3.17%.

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