Mortgage application volumes came down for a second straight reading last week as rising interest rates sent refinance demand spiraling down.
Following a 10 percent drop in early February, refinance applications fell another 16 percent last week, reflecting a pause among consumers as mortgage rates moved up to an average 3.93 percent (for a 30-year fixed-rate loan) on news of continuing job growth.
"Mortgage rates increased to their highest level since the beginning of the year last week, and application volume dropped sharply as a result, particularly for refinances," said MBA Chief Economist Mike Fratantoni. "Refinance volume fell particularly for larger loans, as evidenced by the decline of almost $25,000 in the average loan size for a refinance loan."
The most recent decline brought the refinance share of mortgage activity down to 66 percent of total applications, a decrease of 3 percentage points from the week prior.
MBA's seasonally adjusted gauge of home purchase applications also fell, declining 7 percent week-on-week. Unadjusted, purchase loan volumes fell 2percent from early February but were up 1 percent compared to the same week last year.
The declines came just weeks after the Federal Housing Administration (FHA) cut down its annual mortgage insurance premium to 0.85 percent, a move that was hoped to spur interest from first-time and cash-strapped homebuyers.
While the FHA reduction may not have helped lift application activity last week, it did get some attention: According to MBA, the FHA share of total applications increased to 15.2 percent, a gain of more than 1 percentage point from the previous week.
In a recent study, researchers at the Urban Institute estimated that 2.4 million current FHA borrowers could benefit financially from refinancing now that premiums are lower. At the same time, the group noted that savings—and demand—could change, depending on where mortgage rates headed.