Weekly mortgage applications fall despite rates crossing back below 4%

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A prospective home buyer, left, is shown a  home by a real estate agent in Coral Gables, Florida.

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After a huge jump the week before, mortgage refinance demand pulled back sharply last week, likely because borrowers were less worried about rising rates.

That caused total mortgage application volume to decline 2.2% for the week, according to the Mortgage Bankers Association’s seasonally adjusted survey. The week’s results include an adjustment for the Veterans Day holiday.

Refinance applications dropped 8% for the week, after jumping 13% the previous week. Refinance demand is highly rate-sensitive, and borrowers tend to move quickly when they think rates may be turning higher for the foreseeable future. Rates fell slightly last week, so borrowers may now be thinking they could go even lower. Refinance demand was still 152% higher than a year ago, because rates today are significantly lower.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased to 3.99% from 4.03%, with points increasing to 0.33 from 0.31 (including the origination fee) for loans with a 20% down payment. The rate was 5.16% one year ago.

“U.S. and China trade anxieties and protests in Hong Kong pulled U.S. Treasurys lower last week, and the 30-year fixed mortgage rate followed the same path, dipping below 4%,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Rates have stayed in the same narrow range of around 4% since July, so we may be starting to see the expected slowdown in refinancing as the pool of eligible homeowners shrinks.”

Mortgage applications to purchase a home increased 7% for the week and were  7% higher than a year ago. Housing demand is very strong this fall, thanks to lower mortgage rates and pent-up demand from a slow spring. The annual comparisons are also getting bigger, since demand fell off sharply in the fall of 2018 due to a spike in interest rates.

The refinance share of mortgage activity decreased to 59.5% of total applications from 61.9% the previous week. The adjustable-rate mortgage share of activity decreased to 4.6% of total applications.

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