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Borrower Demand for Refinances Continues to Subside

After last week’s jump in mortgage rates, mortgage applications decreased 7.1% week-over-week, according to the latest Weekly Mortgage Applications Survey for the week ending January 21, 2022 from the Mortgage Bankers Association (MBA).

The MBA’s Refinance Index decreased 13% from the previous week, and was 53% lower than the same week one year ago. The drop-off in refis could be as a result of the rapid rise again in mortgage rates, which hit 3.56% last week according to Freddie Mac.

In terms of measuring purchase apps, the MBA’s seasonally adjusted Purchase Index decreased just 2% from one week earlier. The unadjusted Purchase Index increased 5% compared with the previous week, and was 11% lower than the same week one year ago.

"All mortgage rates in MBA's survey continued to climb, with the 30-year fixed rate rising for the fifth consecutive week to its highest level since March 2020. The 30-year fixed rate is now 77 basis points higher than it was a year ago," said Joel Kan, MBA's Associate VP of Economic and Industry Forecasting. "Unsurprisingly, borrower demand for refinances subsided, with applications falling for the fourth straight week. After almost two years of lower rates, there are not many borrowers left who have an incentive to refinance. Of those who are still in the market for a refinance, these higher rates are proving much less attractive to them."

The refinance share of mortgage activity decreased to 55.8% of total applications from 60.3% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to just 4.4% of total applications.

By loan type, the FHA share of total applications decreased to 8.6% from 9.3% the week prior. The VA share of total applications decreased slightly to 9.9% from 10.0% the week prior, while the USDA share of total applications increased slightly to 0.5% from 0.4% the week prior.

The Fed did decide to hold steady on rates, citing a strong economy and solid employment numbers, the continued lack of inventory and rise in prices serve as a barrier for many into homeownership.

For the month of November, First American found that real house prices increased by 21% year-over-year.

"The decline in purchase activity was led by a 5% drop in government applications, compared to a modest less than one percent decline in conventional applications,” said Kan. “The relative weakness in government purchase activity continues to contribute to higher loan sizes. The average purchase loan size was $433,500, eclipsing the previous record of $418,500 set two weeks ago."

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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