Home loan applications drop, rates to increase

by MPA27 Nov 2015
On a seasonally adjusted basis, mortgage applications fell by 3.2% last week from the previous period, according to the Mortgage Bankers Association, arguing accumulative increases have already discouraged borrowers.

Refinance applications, which are often the most susceptible to change following a shift in rates, fell 5% from last week, seasonally adjusted to the lowest level since early September. Compared with last year’s figure (when interest rates were marginally higher), this year’s volume was 4% higher. Out of the total mortgage applications in America, refinance applications take 58.7% of the share.

Mortgage Bankers Association chief economist Michael Fratantoni pointed out that the 30-year fixed home loan rate jumped almost 20 basis points since the previous low, and the refinance index dropped in four of the last five weeks.

The average contract interest rate for 30-year fixed rate mortgages with conforming loan balances $417,000 or less dipped from 4.18% to 4.14%, with points increasing from 0.45 to 0.49 (including origination fee) for 80% loan-to-value ratio loans.

Applications to purchase a home dropped 1% from last week, but are 24% higher than the same week a year ago.

"Average purchase loan size climbed to a new survey high last week, as the higher end of the market continues to grow more quickly than the entry level," Fratantoni remarked.

It was also observed that increased home prices are discouraging first home buyers from participating this fall season.

The Federal Reserve is expected to raise long-term interest rates in December. Some homebuyers have taken advantage of the currently low rates before the purported increase, but may not have to.

S&P Dow Jones Indices managing director and chairman of the index committee David Blitzer believes that mortgage rates will not push past 4% on 30-year loans. He noted that last year, rates marginally fluctuated as home prices surged. Blitzer then concluded that it would take much more from the Federal Reserve to slow home price hikes.

It is hoped that higher prices and regained home equity would encourage more sellers. The National Association of Realtors noted that the inventory of homes for sale for October fell, when it usually rises around that time of the year. If the trend persists, there will be less homes up for sale, driving up prices to keep up with demand.

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