Weekly mortgage refinancing jumps on fears that ultra-low rates will end

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House for sale in Santa Monica, California.

Lucy Nicholson | Reuters

Last week, mortgage rates rose in line with demand for refinancing. It may sound counterintuitive, but it speaks to the broader picture of where mortgage rates are heading.

According to the Mortgage Bankers Association’s seasonally adjusted index, home loan refinancing applications rose 3% last week from the previous week. Volume was 9% lower than a year earlier.

The data comes as the average contractual interest rate for 30-year fixed rate mortgages and associated loan balances ($ 548,250 or less) rose to its highest level in a month. It increased to 3.18% from 3.11%, with an increase in a point to 0.48 from 0.36 (including commission for issuing a loan) for loans with a 20% down payment. A year ago, the rate was only 12 basis points higher.

Rates jumped after Federal Reserve officials said last week that a rate hike could occur in 2023, a year earlier than expected. However, they did not mention when they would start phasing out their massive bond buying program, which is keeping mortgage rates at record lows.

Refinancing demand has plummeted as rates rose, but has improved in recent weeks. This could be because homeowners think rates are only going up and this could be the last chance for a better deal. Rates hit more than a dozen record lows last year, and demand for refinancing was overwhelming. However, thousands of borrowers can still save now before rates rise.

The number of home mortgage applications increased 1% from the previous week and was 14% lower than a year ago. Buyers are hitting an affordability wall as home prices continue to skyrocket. Report on secondary home sales in May showed a decline in home sales for the fourth month in a row.

“The drop in affordability is simply driving some new buyers out of the market,” said Lawrence Yoon, chief economist at the National Association of Realtors, which released the report on Tuesday.

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