Weekly refinance demand plummets as mortgage rates hit a 5-week high

A sharp rise in mortgage interest rates took its toll on the lending business last week.

Mortgage application volume fell 1.8 percent for the week, according to the Mortgage Bankers Association’s seasonally adjusted report. Volume was 18 percent lower compared with the same week one year ago.

Refinance volume, which is highly rate-sensitive, fell 6 percent for the week and was 39 percent lower than a year ago. Mortgage rates were significantly lower a year ago, and the vast majority of borrowers eligible for a refinance have already done so at the near record low rates the market offered a few years ago. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.84 percent from 4.80 percent last week, with points increasing to 0.46 from 0.43 (including the origination fee) for loans with a 20 percent down payment.

“As mortgage rates increased to a five-week high, the refinance index decreased to its lowest level since the end of 2000,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Treasury rates increased through the week, mainly in response to stronger data on the manufacturing sector, unemployment claims and signs of faster wage growth.”

Mortgage applications to purchase a home, which are less rate-sensitive week to week, rose 1 percent last week and were 4 percent higher than a year ago. Purchase volume has been decidedly weak this year, as affordability constraints hit demand. Home prices continue to surge, albeit at a slower pace than last year. But prices have already surpassed their 2006 peaks, and lending today is much stricter now.

As a result, lenders are bearish on demand, according to a recent survey of lenders by Fannie Mae. The net share of lenders reporting demand growth over the last three months, as well as the net share reporting growth expectations for the next three months, reached the lowest readings for any third quarter in the history of the 4-year-old survey.

“The profit outlook remains negative, with those lenders expecting decreased profit margins outweighing those anticipating increases for the eighth consecutive quarter,” Fannie Mae chief economist Doug Duncan said in a release. “For the first time this year, consumer demand was one of the top two reasons for the downbeat profit outlook, cited by more than one-third of lenders — a record high.”