NEW YORK – Applications for U.S. home mortgages decreased last week as rising interest rates led to a sizable decrease in refinancing activity and purchasing, the Mortgage Bankers Association (search) said on Wednesday.
"The increase in mortgage rates has reduced application activity across the board, particularly for refinances. Refinance applications are down more than 60 percent relative to this time last year," Michael Fratantoni, MBA's senior director of single family research and economics, said in a press release.
Interest rates on fixed 30-year loans edged up last week, and have been steadily climbing in recent weeks.
Fixed 30-year mortgage rates (search) averaged 5.95 percent last week, excluding fees, up 4 basis points from 5.91 percent the previous week, but 24 basis points higher than a month ago.
The MBA's seasonally adjusted index of refinancing applications dropped 16.5 percent to 1894.4, after rising 4.2 percent the prior week.
Refinancings also decreased as a percentage of all mortgage applications, falling to 39.5 percent from 42.9 percent the previous week.
Ditech.com, one of the nation's leading online lenders, has seen a significant drop in demand for refinancings.
"Consumers are becoming increasingly reactionary and are very savvy about what they want and can afford," said Michael McCarthy, general manager at Ditech.com.
McCarthy said that while interest in loan refinancing has dropped over the past month, he has seen a 15 percent increase in demand for home equity lines of credit during the same time period.
Overall, the Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity decreased 9.5 percent to 658.8 in the week ended March 18, more than offsetting the 3.2 percent rise the week before.
In spite of last week's large decline, analysts note that the MBA's refinancing index remains at an elevated level.
In July of 2004, with comparable mortgage rates, the index stood at around 1650, about 15 percent below last week.
"It is not entirely clear why strong refinancing activity persists, although we suspect that lender solicitation plays an important role," Citigroup analysts said in commentary Wednesday.
"However, higher mortgage rates will eventually prevail, and given another selloff yesterday, we expect the MBA refinancing index to come down substantially in the next couple of weeks," the firm added.
The MBA's purchase index, a gauge of loan requests for home purchases, declined for the first time in four weeks, falling 3.5 percent 446.4, after it gained 2.5 percent the previous week.
Lower purchasing activity also is likely in the future.
Sales of existing U.S. homes fell 0.4 percent in February to a seasonally adjusted annual rate of 6.79 million units last month, the National Association of Realtors (search) said. That figure includes both single-family homes and condominiums.
Applications for adjustable-rate mortgages (ARMs) increased to 33.5 percent from 32.4 percent of total applications.
One-year ARM rates averaged 4.12 percent, down from 4.19 percent one week earlier.
The MBA's survey covers approximately 50 percent of all U.S. retail residential mortgage originations, and has been conducted weekly since 1990.
Respondents include mortgage bankers, commercial banks and thrifts.