Rates Inch Up, Mortgage Applications Recede
June 13, 2018
The recent drop in interest rates appears to be short-lived. Mortgage rates inched higher last week, prompting loan demand to soften.
Total mortgage application volume, which includes home purchases and refinancings, dropped 1.5 percent last week compared to the previous week on a seasonally adjusted basis, the Mortgage Bankers Association reported Wednesday. Applications are now 15.4 percent lower than a year ago.
Refinance volume, which tends to be the most rate-sensitive, dropped 2 percent for the week and is down nearly 34 percent from a year ago, when interest rates were lower. Mortgage applications for home purchases also dropped 2 percent for the week but are just 0.2 percent lower than a year ago, the MBA reports. This is one of the few times this year that purchase applications have been down on an annual basis. Economists note that a severe shortage of homes for sale may be more of an issue for home buyers than the uptick in interest rates, however.
The 30-year fixed-rate mortgage averaged 4.83 percent, up from 4.75 percent the week prior, the MBA reports. Mortgage rates are near seven-year highs. That could soon change. The Federal Open Market Committee raised its lending interest rate on Wednesday afternoon by 0.25% to a range of 1.75%-2%, the highest since September 2008.
“We are still in the middle innings of rising interest rates; consumers should expect another three or four rounds of interest rate increases over the next 18 months,” said NAR Chief Economist Lawrence Yun. “Mortgage rates will consequently continue to nudge higher. Fortunately, the economy is strong and wages are rising. If housing supply can be increased through more home building, then the negative impact of rising interest rates can be mitigated.”
“The Fed announcement could push rates quickly higher or lower in the afternoon,” Matthew Graham, chief operating officer at Mortgage News Daily, told CNBC. “Less than 24 hours later, the European Central Bank is out with their own hotly anticipated policy update. In both cases, investors aren’t wondering about rate hikes (we already know the Fed will and the ECB won’t). Rather, it’s the accompanying details that run the risk of causing significantly volatility for rates.”
Update: This story was updated with details of the interest rate increase and reaction from NAR Chief Economist Lawrence Yun.
Updated: May 24, 2019