Mortgage Applications Fall as Rates Continue to Rise
The optimism brought on by Tuesday's Pending Home Sales data may be tempered this morning as the MBA Mortgage Applications release showed conditions in the housing sector are far from a clear bottom and recovery. The weekly report showed the number of those applying for mortgage loans fell 16.2% in the last week of May following a 14.2% fall in the prior week. The figure had been in a cyclical trend of rise and fall for several weeks before today's data. Specifically, applications for home purchase loans gained for the fourth time in five month at 4.3% while refinancing applications fell a sharp 24.1% following an equally impressive fall of 18.9% in the previous week. Rising rates discourage homeowners from refinancing as the costs of doing so may not be advantageous compared to the money that would be saved in monthly payments. Looking deeper into the cost of loans, the 30-year fixed rate mortgage rose to 5.25% from 4.81% in the week prior while still remaining noticeably below last year's level at 6.17%. Other contracts have risen across the board including a gain in the 15-year loan from 4.44% to 4.8%, as well as an increase in the 1-year adjustable rate mortgage to 6.61%, just shy of last year's 6.80%.
The US government has taken immense steps in an attempt to lower mortgage rates and encourage a recovery in the housing sector, seen as one of the legs vital to a stable economy. Measures including majority ownership in loan giants Freddie Mac/Fannie Mae, cutting of the Federal Funds and other rates to all-time lows, and quantitative easing have all been largely successful in taking rates below five percent. Despite the improvement which has resulted in some measure of price stability in the housing sector, mortgage rates have been on the rise in recent weeks along with rallies in equity markets that have sent the treasury yield curve shifting higher. Should the trend continue, prices may decline further as demand slows.