Over the past two weeks, mortgage applications have dropped significantly, even after adjusting for the holidays. What’s behind the sudden drop?
Most of it seems to be due to an unwarranted rush on mortgages at the beginning of December as home buyers and owners quickly tried to lock-in mortgage rates before the Federal Reserve increased its funds rate for the first time in nearly 10 years. That has in turn prompted a steep drop since the rush has now subsided.
But the rush wasn’t needed either. Mortgage rates did not follow the Fed’s actions, as some had feared, and have remained near historical lows.
Mortgage applications for refinancings and home loans dropped 27 percent on a seasonally adjusted basis for the week that ended Jan. 1 compared with two weeks earlier, the Mortgage Bankers Association reports. Broken out, refinance applications fell 37 percent from two weeks ago on a seasonally adjusted basis while applications to purchase homes dropped 15 percent. Still, applications for home purchases remain 22 percent higher than a year ago.
Many housing analysts expect that mortgage rates will rise throughout this year as the economy shows improvement. But for now, the average on a 30-year fixed-rate mortgage is still low by historical standards at 4.20 percent in the latest week. Still, that is the highest it has been since July, MBA reports.