After two weeks of sizable gains, mortgage demand cooled last week.
Total application volume fell 2.7 percent compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. Volume was 3.3 percent higher than a year ago.
Refinances, which are highly sensitive to weekly interest rate moves, pulled the volume lower. Applications to refinance a home loan fell 5 percent for the week and were 7 percent lower than a year ago but were still at the highest level since spring.
Borrowers saw a sharp drop in interest rates in December and jumped to take advantage at the start of this year. Last week, however, rates rose slightly. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) increased to 4.75 percent from 4.74 percent, with points decreasing to 0.44 from 0.45 (including the origination fee) for loans with a 20 percent down payment.
The change was tiny, but so many borrowers have already refinanced at rock-bottom rates that there was a small pool of those left who can still benefit from a refinance. Rates are now 11 basis points lower than the previous month but still 39 basis points higher than a year ago.
"Reversing the recent downward trend, borrowers saw increasing rates for most loan types last week, as better-than-expected unemployment claims, easing trade tensions and stabilization in the equity markets ultimately led to a rise in Treasury rates," said Joel Kan, an MBA economist.
The refinance share of mortgage activity decreased to 44.5 percent of total applications from 46.8 percent the previous week.
Mortgage applications to purchase a home fell 2 percent for the week but were 13 percent higher than a year ago. Purchase volume is less sensitive to weekly rate moves, and buyers today continue to be frustrated by high home prices and short supply of entry-level homes. Sales of existing homes fell sharply in December, according to a report this week from the National Association of Realtors. Most blamed that on weaker affordability.
Interest rates took a breather to start this week, as investors saw renewed concern about the direction of trade talks between the U.S. and China. Stock markets sold off.
"Oftentimes, a big loss in equities markets can send money running to the bond market where it benefits interest rates," said Matthew Graham, chief operating officer at Mortgage News Daily. "This was the case overnight with Chinese stocks leading the way. The strong start in bonds allowed lenders to keep rates roughly unchanged and — in some cases — slightly lower."
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