Mortgage refinancers act on lower rates, home buyers don’t

Getty Images Foreclosure prevention counseling fair

Getty Images
Foreclosure prevention counseling fair

More trouble in the Ukraine led to more applications for U.S. mortgage refinances last week; it is all about interest rates.

As investors poured into the bond market and interest rates fell, mortgage rates followed suit. Total mortgage application volume increased 1.4 percent on-week last week, according to data from the Mortgage Bankers Association (MBA). Refinance applications were behind the surge, rising 3 percent on-week, on a seasonally adjusted basis. They are still off 31 percent from a year ago, despite the fact that rates are lower today than they were a year ago.

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“Conventional refinance applications increased last week as mortgage rates dropped to their lowest level in over a month. However, the refinance index remains within the narrow range we have been in over the past year, as most borrowers have little incentive to refinance at this level of rates,” said Michael Fratantoni, chief economist for the MBA.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.29 percent from 4.35 percent, for 80 percent loan-to-value ratio (LTV) loans. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $417,000) decreased to 4.18 percent from 4.24 percent.

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Mortgage applications to buy a home continue to weaken, down 0.4 percent from a week ago. These applications, which are vital to the recovery in single-family housing, are down 11 percent on-year. Behind the drop, a near 6 percent decline in applications for government mortgages, which include loans from the Department of Veterans Affairs and loans insured by the Federal Housing Administration (FHA). The MBA could offer no explanation for the decline in government loan applications.

While all-cash buyers are still an inordinately large share of the market, that share is slowly waning. All-cash sales accounted for 37.9 percent of all sales of single-family homes and condos nationwide in the second quarter, down from a three-year high of 42.0 percent in the previous quarter but still up from 35.7 percent a year ago, according to RealtyTrac, a real estate sales and analytics company.

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“This is a classic good news/bad news scenario for the housing market,” said RealtyTrac’s Daren Blomquist. “The good news is that fewer cash buyers should help loosen up inventory of homes for sale and reduce competitive bidding, giving first time home buyers and other non-cash buyers more opportunities. The bad news is that some of those first time home buyers and other non-cash buyers may already be priced out of the market thanks to the rapid run-up in home prices over the past two years in many areas.”

Sales of existing homes have risen slightly over the past few months, although sales of newly built homes, which come at a premium to existing homes, saw a steep decline in June. July numbers for existing home sales will be released by the National Association of Realtors Thursday.

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