D.O.M.R pt. 3: (+0.25) Up-tic in rates causes 16% drop in refinance apps
By: Ed Ferrara
Apr. 07, 2010 (FreeRateUpdate.com) – Not too long ago I wrote a part 1 and part 2 to an article titled “the death of mortgage refinance looms” in which I explained how even a modest rise in long term mortgage rates would cause refinance to die off, and that current refi apps are down way more than anyone thinks do to a glitch in era to era tracking in the MBA system (changes in retail market share screws up the data).
Following up on this topic, today the Mortgage Bankers Association said in their weekly mortgage applications survey results a 16% drop in mortgage refinance applications took place week over week. The drop is attributed to rising mortgage rates. 30-yr fixed rates have risen about 1/4% in the past week.
Purchase applications on the other hand are steady. In fact, ahead of the Apr. 30th expiration of the IRS home-buyer tax credit, purchase apps rose for the third straight week. Still the index over all is down 11% thanks to the hefty drop in refi applications.
Purchase applications now make up half of all mortgage applications, the highest share since Feb. 1990 – MBA.
As I explained previously it’s refinance that will die off as rates rise. As rates rise potential borrowers are pushed out of the refinance market completely. For example, while a refinance from 5.5% to 4.75% might make sense to a consumer, 5.5 to 5% (today’s rate) may not. Due to the extended period of low rates we’ve seen, and I’m talking years now, most borrowers are in the mid 5′s to low 6′s already. There’s a lot more to it and I’ll get into that later this week, If an up-tic of just 1/4%, pushing the 30-yr fixed rate to an outstanding historically low 5% rate can cause an already down refi market to drop 16%, just imagine what will happen when rates move to the mid to high 5′s.