Rising Rates Push Refi Activity to Lowest Level in Two Years

The numbers of mortgage applications fell again during the week ended June 28, the third consecutive week they have done so. The Mortgage Bankers Association (MBA) said this morning that its Market Composite Index, a measure of application volume, decreased 11.7 percent on a seasonally adjusted basis and 12.0 percent on an unadjusted basis compared to the week ended June 21.

The drop in activity was largely the result of falling interest in refinancing. The Refinance Index was down 16 percent to reach its lowest level since July 2011 and the share of applications accounted for by refinancing fell to 64 percent, the smallest since May 2011, from 67 percent the previous week. The Home Affordable Refinancing Program (HARP) was responsible for 34 percent of refinancing applications, up from 30 percent the previous week.

The Purchase Index was down 3 percent on a seasonally adjusted basis from the week before. The unadjusted Index was 4 percent lower than the previous week but up 12 percent compared to the same week in 2012.

Purchase Index vs 30 Yr Fixed

Refinance Index vs 30 Yr Fixed

"Mortgage rates reached their highest point in two years last week. At these rates, many fewer homeowners have an incentive to refinance, and refinance application volume declined more than 15 percent. With this decline in volume, the refinance share dropped to its lowest level in more than two years. Purchase application volume also declined, but not nearly to the same extent, as affordability remains strong," said Mike Fratantoni, MBA's Vice President of Research and Economics.

Average contract and effective interest rates increased for all 80 percent loan-to-value ratio loans tracked by MBA. The average contract rate for 30-year fixed-rate mortgages (FRM) with conforming balances of $417,500 or less increased to 4.58 percent, the highest rate since July 2011, from 4.46 percent. Points, which include the origination fee, rose from 0.35 to 0.43. The jumbo version of the 30-year FRM, with balances over $417,500, averaged 4.68 percent, an increase of 16 basis points from the previous week. Points increased to 0.38 from 0.28.

Thirty-year FRM with FHA backing had average rates of 4.27 percent, the highest since September, 2011 with 0.44 points. The previous week the rates had averaged 4.20 percent with 0.40 point.

The rate for 15-year Fixed Rate Mortgage increased to 3.64 percent, the highest rate since July 2011, with 0.44 point compared to 3.55 percent with 0.43 point.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 3.33 percent, the highest rate since July 2011, from 3.06 percent,with points decreasing to 0.31 from 0.39. The ARM share of activity increased to 8 percent of total applications and is at its highest level since July 2008.

MBA's Weekly Mortgage Application Survey covers over 75 percent of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100.