WASHINGTON–Demand for mortgage loans dropped last week after interest rates hit a three-month high. But rates are considered just one factor in the slowdown and mortgage volume remains up significantly from one year earlier.
Mortgage interest rates have increased in four of the first six weeks of 2021—there was a jump in refi applications during one of the weeks that saw a decline--putting a chill on mortgage demand, according to the Mortgage Bankers Association, which said overall mortgage application volume fell 4.1% last week compared with the previous week.
According to the MBA, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of up to $548,250 increased to 2.96% from 2.92%, for loans with a 20% down payment. The rate was 76 basis points higher a year ago.
Refinance demand, which is most sensitive to weekly rate fluctuations, fell 4% for the week but were 46% higher than a year ago, the MBA said. “That annual comparison had been over 100% at the start of this year but has been shrinking,” the association noted.
Expectations of Growth
"Despite some weekly volatility, Treasury rates have been driven higher by expectations of faster economic growth as the Covid-19 vaccine rollout continues," said Joel Kan, the MBA's associate vice president of economic and industry forecasting.
The MBA said the refinance share of mortgage activity decreased to 70.2% of total applications from 71.4% the previous week, the lowest level in three months.
Beyond rates, continuing to contribute to the slowdown has been low supply and rapidly rising home prices. Mortgage applications to purchase a home fell 5% for the week but were still 17% higher year over year, the BMA said.
"Purchase applications cooled the first week of February, but homebuyers are still very active," Kan stated. "The average purchase loan size continued to increase, reaching another survey high of $402,200, as the higher-priced segment of the market continues to perform well." The MBA began its weekly survey nearly 31 years ago.