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Mortgage rates rose again last week, and so did demand for refinances, which at face value doesn’t make a lot of sense.
Applications to refinance a home loan jumped 13% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Application volume was still 29% lower than the same week one year ago.
Refinancing demand usually moves in the same direction as mortgage rates, but that was not the case. Last week the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 7.31% from 7.27%, with points remaining unchanged from 0.72 (including the origination fee) for loans with a 20% down payment.
It may be that borrowers are concerned rates could go even higher, and so they’re jumping in now. It may also be that the number of refinances are so small right now that any minor change results in a big percentage move.
Applications for a mortgage to purchase a home increased 2% for the week and were 26% lower than the same week one year ago.
“Purchase applications increased for conventional and FHA loans over the week,” said Joel Kan, an MBA economist in a release. “Homebuyers continue to face higher rates and limited for-sale inventory, which have made purchase conditions more challenging.”
With home prices now rising again, the average loan size on a purchase application was $416,800, the highest level in six weeks. Demand may be coming back, because more homes have recently come on the market. The overall level of supply, however, is still quite low, which is leading to bidding wars again.
Mortgage rates haven’t moved much this week, as investors wait to hear the results of Wednesday’s Federal Reserve meeting and commentary from Chair Jerome Powell on the future of interest rates.