E Economics

U.S. Mortgage Refinancing Index Kept Falling Amid Higher Mortgage Rates

25 March, 2021
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U.S. mortgage refinancing index fell six out of the last seven weeks. Mortgage Bankers Association (MBA) data showed that the refinance index decreased by 5.1 percent in week ending March 19, 2021 (v -4.2 percent w/w prior) to the lowest since September 2020. As a result, U.S. mortgage refinancing applications fell 12.6 percent year to date and were down 12.7 percent compared with the same week one year ago. In this context, the refinance share of mortgage activity decreased to 60.9 percent of total applications from 62.9 percent the previous week.

 

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The decline came as the 30-year mortgage rates jumped to 3.36 percent last week (up from 3.28 percent prior), which is the highest since June 2020 and up 50 basis points since the start of 2021. Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting, said “Refinance activity dropped to its slowest pace since September 2020, with declines in both conventional and government applications. Mortgage rates have moved higher in tandem with Treasury yields, as the outlook for the U.S. economy continues to improve amidst the faster vaccine rollout and states easing pandemic-related restrictions“.

 

As I already noted, concerns over the potential for higher inflation, a strong economic recovery and a massive federal government deficits have pushed Treasury yields higher. In this context, it seems that the bottom is probably behind us.

 

However, on the positive side, mortgage purchase applications — which are usually less sensitive to short term rate moves — jumped 2.6 percent over the same week and were 27.2 percent higher than the same week one year ago. Joel Kan added “Purchase applications were strong over the week, driven both by households seeking more living space and younger households looking to enter homeownership. The purchase index increased for the fourth consecutive week and was up 26 percent from last year’s pace. The average purchase loan balance increased again, both by quickening home-price growth and a rise in higher-balance conventional applications.