Mortgage refinances crumble as interest rates resume their climb

A sign announcing the rates for home loans to buy or refinance at a Bank of America in New York.

Scott Mlyn | CNBC

A brief surge in mortgage refinancing demand quickly faltered, after interest rates resumed their ascent along with the stock market. The initial fear of the Covid omicron variant drove rates down for about four days, causing borrowers to rush to their lenders, but then rates rose sharply again, then fluctuated a bit last week.

Due to the large swings, for the week the average contractual interest rate for 30-year fixed rate mortgages with compliant loan balances ($ 548,250 or less) remained unchanged at 3.30%, points remaining unchanged at 0.39 (including origination fee) for loans with a down payment of 20%.

Home loan refinancing requests fell 6% for the week and were 41% lower than the same week a year ago, according to the Mortgage Bankers Association’s seasonally adjusted index. Around the same time last year, rates were about 45 basis points lower.

“Fewer homeowners have a strong incentive to refinance at current rates,” said Joel Kan, MBA economist.

About a quarter of all borrowers have rates below 3% with more between 3% and 3.5%, according to Black Knight, a mortgage data and analysis company. In general, borrowers would need to reduce their current rate by about 50 basis points to be worth refinancing.

Mortgage applications for the purchase of a home increased only 1% on a week-over-week basis and were 9% lower than the same week a year ago. While the demand for housing is high, the supply is low and prices continue to rise at a rapid rate. The trajectory of higher mortgage rates ahead is not helping homebuyers, especially newcomers who have very little room in their budget.

Mortgage rates were flat at the start of the week, but all bets are off Wednesday afternoon when the Federal Reserve makes its final monetary policy announcement. Although mortgage rates do not keep pace with the federal funds rate, they are heavily influenced by the Fed’s purchases of mortgage-backed bonds. This support since the start of the pandemic has caused mortgage rates to hit more than a dozen record lows last year. It’s about to end.

“The Fed will most likely announce a faster cut to its bond buying programs. The target end date for bond buying will tacitly suggest when the Fed plans to hike rates for the first time since. that it brought them down to zero at the onset of the pandemic, ”wrote Matthew Graham, chief operating officer at Mortgage News Daily.

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