By Natalie DeCoste
A recent report from the Mortgage Bankers Association for the week ending Aug. 27 revealed relative stability for the average contract interest rate for 30-year fixed-rate mortgages and provided insight into the impact of low mortgage rates on applications to refinance home loans.
The survey data showed that the Market Composite Index, a measure of mortgage loan application volume, decreased 2.4% on a seasonally adjusted basis from one week prior. On an unadjusted basis, the Index decreased 3% compared with the previous week.
For the week ending Aug. 27, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, those that are $548,250 or less, remained unchanged at 3.03% last week.
As the average contract rate for 30-year and 15-year mortgages showed little to no change, the impact of this stagnation caused the Refinance Index to decrease to 4% from the previous week. This rate was 2% higher than the same week one year ago.
“There was little change in mortgage rates last week, with the 30-year fixed remaining at 3.03 percent. Despite low rates, refinance applications declined, with some borrowers still waiting for rates to drop even lower. Recent uncertainty around the economy and pandemic have kept rates low over the past month, which is why the refinance index has oscillated around these levels,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
The decrease in refinances shows that homeowners either have already refinanced their homes at these exceptionally low rates or are waiting to see if the rates will continue to decrease so they can get in at a lower rate.
When the data was taken for the report, rates were just five basis points higher than last year. However, they were lower last fall and at the start of this year, so a large share of borrowers have lower rates than today’s.
The rate of applications for a mortgage to purchase a home, officially called the adjusted Purchase Index, increased 1% from one week earlier. The unadjusted Purchase Index decreased 2% compared with the previous week and was 16% lower than the same week one year ago. Home sales have seen significant slowing recently, as potential buyers hit an affordability wall amidst record-high prices. Home prices were up 18.8% in June, a record annual gain on the S&P Case Shiller national home price index.
“Even with a slight increase, purchase activity hit its highest level since early July, as applications for conventional and government loans increased. Home purchase activity continues to be dominated by higher price tiers of the market, with the purchase average loan size now at $396,500, the highest average in five weeks. According to FHFA, June’s year-over-year increase in home prices was 18.8 percent, while the second quarter saw a 17.4 percent increase overall. Both measures set new records, as housing demand continued to outpace the inventory of homes for sale,” said Kan.