Mortgage applications plummet with rate spike

The Scotsman Guide - Victor Whitman - 16 November 2016

A post-election spike in mortgage rates has caused refinancing activity to plummet and drove down overall mortgage applications.  

Overall home-loan applications fell 9.2 percent seasonally adjusted for the week ending Nov. 11, the Mortgage Bankers Association (MBA) reported. Refinances, seasonally adjusted, fell 11 percent to the lowest point since March. Purchase applications declined by 6 percent to the lowest level since January, MBA reported.

The declines were rate driven.  Treasury yields rose to their highest level in nearly a year as investors rushed to selloff bonds in favor of stocks and higher yielding investments in the wake of Donald Trump’s victory in the Nov. 8 election. This pushed up long-term mortgage rates dramatically. 

"Following the election, mortgage rates saw their biggest week over week increase since the taper tantrum in June 2013, and reached their highest level since January of this year," MBA President David Stevens said.

"Investor expectations of faster growth and higher inflation are driving the jump up in rates, and rates have now increased for five of the past six weeks, spurring a commensurate drop in refinance activity," Stevens continued.  

The 30-year fixed rates with conforming balances jumped to 3.95 percent, up 18 basis points from the prior week, MBA said. Other surveys had the 30-year fixed rate climb above the 4 percent threshold. MBA said that the refinance share dropped 40 basis points to 61.9 percent.

 In a monthly commentary, Freddie Mac’s Chief Economist Sean Becketti downplayed the impact of the short-term movement on rates. He said that changes in the distribution of incomes, land costs and land-use restrictions will have more long-term impact on the housing market than “the week-to-week oscillations of mortgage rates or any of a host of other short-term indicators.”

“These three trends affect housing and mortgage markets through their influence on both the demand for and the supply of housing,” Becketti said.