Brushing off rising rates, mortgage applications increase by 2.5%

After seeing interest rates rise for nearly two months, homebuyers and homeowners are taking tentative steps back into the mortgage market

After seeing interest rates rise for nearly two months, homebuyers and homeowners are taking baby steps back into the mortgage market.

According to data from the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending December 16, 2016, mortgage applications increased 2.5% from one week earlier.

The Market Composite Index, which measures mortgage loan application volumes, increased 2.5% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 2% compared with the previous week, while the Refinance Index increased 3% from the previous week.

Meanwhile, the seasonally adjusted Purchase Index increased 3% from one week earlier, and the unadjusted Purchase Index decreased 0.1% compared with the previous week. The unadjusted Purchase Index was also 1% higher than the same week one year ago.

After 10 weeks of declines, applications to refinance home loans gained a little, rising 3% for the week but still down double digits from a year ago. Despite rising rates, thousands of borrowers can still benefit from refinancing, though some have been sidelined by negative home equity, which disqualifies them from refinancing.

Moreover, fast-rising house prices are improving the equity situation of greater numbers of borrowers, finally allowing them to take advantage of what are still relatively low rates.  

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $417,000 or less increased to its highest level since May 2014—hitting 4.41% from 4.28%, with points increasing to 0.38 from 0.36 (including the origination fee) for 80% loan-to-value ratio loans.

“Mortgage rates increased at least partially as a result of the Federal Reserve's rate hike and move to a slightly more hawkish stance,” said Mike Fratantoni, Mortgage Bankers Association's chief economist. “Borrowers may have gotten applications into their lender in advance of the FOMC announcement, as most observers anticipated an increase in the Fed's rate target at the December meeting.”

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