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Mortgage Rates Increase And Refinances Fizzle Out

Katie Jensen
Oct 27, 2021

Higher rates continue to reduce borrowers' incentive to refinance.

KEY TAKEAWAYS
  • Mortgage applications increased 0.3% from last week.
  • The Refinance Index decreased 2% from the previous week and fell 26% year-over-year. Meanwhile, the seasonally adjusted Purchase Index jumped 4% from last week.
  • 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.
  • 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.

Mortgage rates increased yet again last week, but that stopped mortgage applications from rolling in. Mortgage applications increased 0.3% from last week, according to Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending October 22, 2021. 

The Market Composite Index, a measure of mortgage loan application volume, increased 0.3% on a seasonally adjusted basis from one week earlier. On an adjusted basis, applications increased 0.2%. The Refinance Index decreased 2% from the previous week and fell 26% year-over-year. The seasonally adjusted Purchase Index jumped 4% from last week. The unadjusted Purchase Index fell 3% since the previous week, making it 9% lower than the same week last year. 

“Mortgage rates increased again last week, as the 30-year fixed rate reached 3.30 percent and the 15-year fixed rate rose to 2.59 percent - the highest for both in eight months,” said Joel Kan, MBA's associate vice president of economic and industry forecasting. “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.” 

Kan’s forecasting and analysis appear to be true, as the refinance share of mortgage activity continues to dwindle. Refinance applications decreased to 62.2% of total applications compared to 63.3% the previous week. The adjustable-rate mortgage (ARM) share of mortgage activity also fell to 3.1% of total mortgage applications. 

“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 added. “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 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.”

The FHA share of total applications increased to 10.4% from 10.2% the week prior. The VA share of total applications increased to 10.6% from 10.4% the week prior. Meanwhile, the USDA share of mortgage applications remained unchanged from 0.5% the week prior. 

The average contract interest rate for 30-year-fixed mortgages with conforming loan balances ($548,250 or less) increased to 3.30% from 3.23%, with points decreasing to 0.34 from 0.35. For 80% loan-to-value loans. The effective rate increased from last week. 

The average contract interest rate for 30-year-fixed-rate mortgages with jumbo loan balances (greater than $548,250) increased to 3.34% from 3.26%, with points decreasing from 0.33 to 0.26 for 80% LTV loans. The effective rate increased from last week. 

For 30-year fixed-rate mortgages backed by the FHA, the average contract interest rate increased to 3.31% from 3.17%, with points increasing to 0.38 from 0.32 for 80% LTV loans. The effective rate increased from last week. 

Meanwhile, the average contract interest rate for 15-year fixed-rate mortgages increased to 2.59% from 2.54% with points increasing to 0.33 from 0.29 for 80% LTV loans. The effective rate increased from last week. 

Additionally, the average contract interest rate for 5/1 ARMs decreased to 2.89% from 3.09% with points decreasing to 0.13 from 0.30 for 80% LTV loans. The effective rate decreased from last week. 

 

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