The falling mortgage rates are unable to offset the high prices of homes, and is causing buyers to pull back. The total application volume for mortgages has increased by 1.5% in the last week, and 12% from 2018 according to the seasonally adjusted index of the Mortgage Bankers Association, with gains driven by refinances.
The average interest rate of a contract for fixed mortgages of 30 years with loan balances ($484, 350 or less) has decreased to a mere 4.23% from 4.33% by the end of last week, and points have decreased from 0.42 to 0.33, including origination fee for loans with 20% down payment.
According to Mike Fratantoni, MBA senior vice president and chief economist, mortgage rates have dropped to the lowest level since the beginning of 2018 due to increasing concerns ongoing trade disputes with China and Mexico. He also said that some borrowers, ones with larger loans, have jumped on the opportunity to refinance, and have increased the index and average refinance loan size since April. Refinancing for FHA and VA loans have jumped by 11%.
The total refinance volume has risen by 6% from last week and was almost 33% higher than 2018 when rates of interest were higher by 52 basis points. From last week, the refinance share of mortgage activity has increased to from 39.7% to 42.2% of the total application.
The highly sensitive refinance drop rates have added 2 million more borrowers to the existing pool of benefactors according to Black Knight which is a mortgage software and analytics firm.
A 2% drop was noticed in applications for mortgage by homeowners which are 0.5% higher than in 2018. The expensive prices continue to dissuade buyers who are purchasing their first homes. Millennials are now at their prime home-buying years but are ridden with debts and are paying expensive rents are approaching the least affordable markets in the few decades.
Fratoantoni said that since the Memorial Day holiday, financial markets have been impacted by volatility caused due to trade tariffs, and purchase application volume decreased for the week. Potentially, homebuyers have been more cautious with the given economic uncertainty.
The rates of mortgages continue to fall sharply in the week, which is the lowest since August 2017. An all-inclusive monthly employment report will be released on Friday and will cause another strong swing in the market trends.
