Refi Interest Wanes as Rates Begin to Rise

The latest data from the Mortgage Bankers Association (MBA) has found that overall mortgage application volume declined 7.2% week-over-week, as the nation comes off a holiday-shortened week due to Thanksgiving.

The MBA’s Refinance Index decreased 15% from the previous week, but 41% lower than the same week one year ago. The seasonally adjusted Purchase Index increased 5% from one week earlier, as the unadjusted Purchase Index decreased 30% compared to the previous week, and 8% lower than the same week one year ago.

"Mortgage rates rose for the third week in a row, reducing the refinance incentive for many borrowers,” noted Joel Kan, MBA's Associate VP of Economic and Industry Forecasting. “Over the past three weeks, rates are up 15 basis points and refinance activity has declined over 18%. Despite higher mortgage rates, purchase applications had a strong week, mostly driven by a 6% increase in conventional loan applications. Conventional loans tend to be larger than government loans, and this was evident in the average loan amount, which increased to $414,700—the highest since February 2021.”

The refinance share of overall mortgage activity decreased to 59.4% of total applications, down from 63.1% the previous week, while the adjustable-rate mortgage (ARM) share of activity increased to 3.6% of total applications.

By loan type, the FHA share of total applications increased to 8.9% from 8.6% the week prior. The VA share of total applications decreased to 10% from 10.3% the week prior. The USDA share of total applications increased to 0.5% from 0.4% the week prior.

“As home-price appreciation continues at a double-digit pace, buyers of newer, pricier homes continue to dominate purchase activity, while the share of first-time buyer activity remains depressed,” said Kan.

According to the latest Pending Home Sales Index from the National Association of Realtors (NAR), home sales rose 7.5% in October.

“Motivated by fast-rising rents, and the anticipated increase in mortgage rates, consumers that are on strong financial footing are signing contracts to purchase a home sooner rather than later,” said Lawrence Yun, NAR’s Chief Economist. “This solid buying is a testament to demand still being relatively high, as it is occurring during a time when inventory is still markedly low.”

As inventory remains a concern for the market, with supply chain issues continuing to impede construction, bidding wars are heating up once again for the limited supply of homes available.

Bidding wars may have reached a pandemic peak in April, but Redfin reported that 60.3% of all offers written by Redfin agents in October experienced a bidding war. Redfin expects this number to plateau, if not trend upward, with homebuyer demand remaining elevated, as buyers are feeling the heat of rising interest rates.