An uptick in mortgage rates following last week’s Federal Reserve meeting cooled demand for both purchase mortgages and refinancing, particularly for government-backed FHA, VA and USDA loans.

A weekly survey by the Mortgage Bankers Association showed requests for conventional refinance loans actually increased, “perhaps a sign that some borrowers reacted to higher rates and decided to refinance,” MBA forecaster Joel Kan said.

Joel Kan

“Increased optimism about the strength of the economy pushed Treasury yields higher following last week’s Federal Open Market Committee meeting,” Kan said. “Mortgage rates in response rose across all loan types, with the benchmark 30- year fixed rate reaching its highest level since early July 2021. The increase in rates – mostly later in the week – led to a decrease in both purchase and refinance applications, with a prominent decline in government loan applications.”

Requests for purchase loans were down a seasonally adjusted 1 percent from the week before, and off 12 percent from a year ago. Applications to refinance were down 1 percent week-over-week, but up 0.4 percent from a year ago.

Requests for FHA loans accounted for 10.4 percent of all applications, with VA market share dropping to 10.2 percent and USDA market share to 0.4 percent.

With home-price appreciation “continuing to run hot,” the average loan balance for a purchase loan applications increased to $410,000, the highest level since May, Kan said.

During the week ending Sept. 24, 2021, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (with balances of $548,250 or less), rates averaged 3.10 percent, up from 3.03 percent. With points increasing to 0.34 from 0.30 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also increased from last week.
  • Rates for 30-year fixed-rate jumbo mortgages (with balances greater than $548,250), rates averaged 3.14 percent, up from 3.11 percent. With points increasing to 0.33 from 0.25, the effective rate also increased from last week.
  • For 30-year fixed-rate FHA mortgages, rates averaged 3.09 percent, up from 3.07 percent. With points remaining unchanged at 0.25, the effective rate also increased from last week.
  • Rates for 15-year fixed-rate mortgages averaged 2.43 percent, up from 2.34 percent. With points increasing to 0.29 from 0.24, the effective rate also increased from last week.
  • For 5/1 adjustable rate mortgages (ARMs), rates averaged 2.77 percent, up from 2.51 percent. With points increasing to 0.16 from 0.12, the effective rate also increased from last week.

The Federal Reserve signalled last week that it could start scaling back its purchases of mortgages and long-term Treasury bonds later this year. The $120 billion in monthly debt purchases, which were instituted at the outset of the pandemic, have helped keep long-term interest rates low.

Housing industry leaders are keeping a close eye on the rise in mortgage rates, which if sustained could limit the buying power of would-be homebuyers and slow home sales and price appreciation.

Email Matt Carter

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