Higher Rates Are Softening Loan Demand

Diana Olick  |   February 18, 2015

With rates rising to the highest level since the beginning of this year, the market saw a decrease in mortgage applications. Activity plunged 13.2 percent in the week ending Feb. 13, the Mortgage Bankers Association reports in its weekly mortgage market survey. Applications for refinancings posted the greatest loss, falling 16 percent week-to-week on a seasonally adjusted basis. Applications for home purchases – viewed as a gauge of future home buying activity – fell 7 percent, MBA reported.

Check out last week's report on mortgage activity.

Still, total volume of mortgage applications remains 14 percent above where it was a year ago, at a time when interest rates were notably higher.

Since the start of the year, home buyers and refinancers have been able to take advantage of low interest rates that have mostly hovered near record lows. But rates have gradually started ticking up recently. The 30-year fixed-rate mortgage rose to 3.93 percent last week, from 3.84 percent the previous week, MBA reports.

One emerging bright spot in mortgage applications that continues to remain strong is Federal Housing Administration-backed loans. In late January, the FHA decreased its annual insurance premiums for borrowers, a move that has prompted an upswing in demand for FHA loans.

"FHA volume continued to be stronger than the market as a whole, but also showed a decline” in the latest week, says Mike Fratantoni, MBA’s chief economist. FHA purchase volume fell 5 percent during the week, and FHA refinance volume dropped by 8 percent. By comparison however, conventional purchase and refinance volumes were down 7 and 17 percent, respectively.

 

Source: CNBC