MBA Report: Refinances Surge After Rates Dropped

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A surge in refinancescaused mortgage applications volume to slightly tick up in the previous week, thanks to a drop in interest rates driven by significant market-pressuring events.

According to recent data from the Mortgage Bankers Association, total mortgage applications increased by 3.3 percent. This is so far great news since the last weeks recorded somber numbers. Still, this year’s record remains lower compared to last year’s which was 23 percent higher than last week’s data.

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The refinance factor

Refinance volume for last week was a good five percent higher from the week prior, a record that surprised many experts. Previously, even when rates edged lower, there were no significant effects on refinancesbut last week’s was another story.

The contract interest rate average for 30-year fixed-rate mortgages decreased by 4.11 percent to 4.06 for loans with conforming loan balances of $424,100 – the lowest since November of last year.

For 15-year fixed-rate mortgages, average contract rates also swung to its lowest since November 2016 from 3.36 percent to 3.34 percent.

It shares the same fate as the 5/1 ARMs which also decreased to 3.14 percent from 3.26 percent.

So what could have influenced this sudden shift?

MBA economist Joel Kan says “heightened geopolitical tensions” from the past weeks brought mortgage interest rates to its lowest since the elections. This gave many homeowners who had been holding back for weeks to finally refinance.

As a result, refinance volume rose, even taking the bigger share of the overall mortgage application volume. Refinances took 51 percent of the pie. This is the first time since January this year that refinance numbers took over purchase share in overall mortgage applications.

Despite the good news, the increase still can’t be considered significant on a week-over-week comparison. New purchase applications only rose 1 percent last week. Even with rates hitting new low, the scarcity in available inventory is still putting a pressure among homebuyers.

The Harvey factor

One of the main reasons why rates have plummeted is Hurricane Harvey. But it is far from being the only important one. Geopolitical tension such as current pressures from North Korea and even more threats from Hurricane Irma and José have inspired the drop.

Harvey basically shut down bank operations in certain areas, preventing the institutions from issuing new originations. On estimate, application volume for purchases caused a down of 21.7 percent and about 22.9 percent for refinances.

For those states affected by the hurricanes, homes might need to be re-appraised and assessed first before any approvals can be issued.

The report

The FHA share of overall mortgage applications decreased from 9.7 percent to 9.6 percent last week.

The VA share of applications also plummeted from 10 percent to 9.7 percent.

Meanwhile, the USDA remained unchanged at 0.7 percent.

After Irma hit, with José on the trail, this week’s rates are projected to drop even more.

Investors are now moving into safer bond markets in response to current market pressures.

Will strong refi numbers hold? With projected low interest rates, it’s a huge possibility. If you’re a shopper looking for the right opportunity to lock, now could be the timing you’ve been waiting for.

The survey

Mortgage applications volume is measured by the Market Composite Index. It gains perspective from 75 percent of all U.S. retail residential mortgage applications. Respondents include mortgage bankers as well as commercial banks and thrifts.


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