Mortgage rates are edging noticeably higher, and would-be home buyers and refinancing homeowners may have missed out on a chance to lock in a lower rate.
Mortgage application volume for refinancings and home purchases dropped 2.7 percent, a seasonally adjusted week-to-week basis, the Mortgage Bankers Association reported May 16. Mortgage application volume is 4.5 percent lower than the same week a year ago.
“Homebuyer demand has remained positive and shaken off the higher rate environment so far this year,” says Sam Khater, Freddie Mac’s chief economist. “However, after years of very low mortgage rates, the symbolic risk of a 5 percent mortgage, on top of higher gas prices, may cause a slowdown in homebuyer demand, particularly in western states and exurbs that are affected more by gas prices than the typical consumer.”
Applications for refinancings posted the biggest drop. Volume plunged 4 percent to the lowest level since August 2008. Refinancing applications tend to be more rate sensitive than applications for home purchases. Refinancing applications are nearly 17 percent lower than a year ago when interest rates were much lower.
Mortgage applications to buy a home dropped 2 percent the week ending May 11, but volume remains 4 percent higher than a year ago.
More buyers are turning to adjustable-rate mortgages, which offer lower introductory rates for a set period before rising. But ARMs are on the rise too. “Jumbo and 5/1 ARM rates increased, with the 5/1 ARM rate increasing to its highest in our survey at 4.09 percent,” says Joel Kan, an MBA economist.
On Thursday, Khater said the 30-year fixed mortgage rate edged up to 4.61 percent, which matches the highest level since May 19, 2011. “Healthy consumer spending and higher commodity prices spooked the bond markets and led to higher mortgage rates over the past week,” he said. “Not only are buyers facing higher borrowing costs, gas prices are currently at four-year highs just as we enter the important peak home sales season.”
Added Khater, “While this year’s higher mortgage rates have not caused much of a ripple in the strong demand levels for buying a home seen in most markets, inflationary pressures and the prospect of rates approaching 5 percent could begin to hit the psyche of some prospective buyers.”