WASHINGTON–After setting more than a dozen record lows last year, mortgage rates began 2021 by ticking up slightly, and that has “lit a fire” under borrowers who are afraid they will miss out.
According to new numbers released by the Mortgage Bankers Association, applications to refinance a home loan spiked 20% last week compared with the previous week in the MBA’s seasonally adjusted index. That was the highest level since last March, reported the MBA, noting the volume was 93% higher than a year ago.
The MBA data show the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) increased to 2.88% from 2.86% last week for loans with a 20% down payment. That rate was 99 basis points higher than a year ago.
"Booming refinance activity in the first full week of 2021 caused mortgage applications to surge to their highest level since March 2020, despite most mortgage rates in the survey rising last week," said Joel Kan, MBA's associate vice president of economic and industry forecasting, in a statement. "The expectation of additional fiscal stimulus from the incoming administration, and the rollout of vaccines improving the outlook, drove Treasury yields and rates higher."
Purchase Mortgages Up
Mortgage applications for purchases rose 8% for the week and were 10% higher than a year ago. MSNBC noted that while demand for housing is still strong, the annual comparison was lower than it has been over the past six months, as buyers are faced with a record low supply of homes for sale and fast-rising prices.
"The lower average loan balance observed was partly due to a 9.2% increase in FHA applications, which is a positive sign of more lower-income and first-time homebuyers returning to the market," Kan said.
Politics Plays Role
MSNBC further pointed out mortgage rates continued their upward trajectory as they followed rising bond yields.
“Much of that is due to the Democrats' win in Georgia, which shifted control of the U.S. Senate. There is now also an expectation of more government relief as well as vaccines rolling out faster, which would improve the employment situation and the overall economy,” the news outlet reported.