Rising mortgage rates have curbed demand for both purchase loans and refinancing, after worries about inflation and Fed tightening pushed mortgage rates to their highest levels since July.

The Mortgage Bankers Association’s Weekly Mortgage Applications Survey showed requests to refinance during the week ending Oct. 1 were down 10 percent from the previous week and 16 percent from a year ago.

Purchase loan applications were also down a seasonally adjusted 2 percent week over week, and 13 percent from the same week a year ago.

Joel Kan

“Higher rates are reducing borrowers’ incentive to refinance, as declines were seen across all loan types” of mortgages, said the MBA’s Joel Kan.

A drop in conventional purchase loan applications was partially offset by a 1 percent uptick in requests for FHA, VA and USDA purchase loans — but not by enough to bring down the average loan balance of $410,000.

“With home-price appreciation and sales prices remaining very elevated, applications for higher balance, conventional loans still dominate the mix of activity,” Kan said.

For the week ending Oct. 1, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (with loan balances of $548,250 or less), rates averaged 3.14 percent, up from 3.10 percent the week before. With points increasing to 0.35 from 0.34 (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 (loan balances greater than $548,250) averaged 3.20 percent, up from 3.14 percent the week before. Although points decreased to 0.27 from 0.33, the effective rate still increased from last week.
  • For 30-year fixed-rate FHA mortgages, rates averaged 3.12 percent, up from 3.09 percent a week ago. With points increasing to 0.31 from 0.25, the effective rate also increased from last week.
  • Rates for 15-year fixed-rate mortgages averaged 2.45 percent, up from 2.43 percent. Although points decreased to 0.24 from 0.29, the effective rate also increased from last week.
  • For 5/1 adjustable-rate mortgage (ARM) loans, rates averaged 2.54 percent, down from 2.77 percent. With points remaining unchanged at 0.16, the effective rate also decreased from last week.

The jump in mortgage followed signals from the Federal Reserve that it could start tapering its purchases of mortgages and long-term Treasury bonds as soon as November.

The Fed’s tapering timeline and concerns about inflation have curbed investors’ appetite for mortgage debt. Other worries include the U.S. debt ceiling deadline and uncertainty over who will be leading the Federal Reserve next year.

Sustained increases in mortgage rates could help cool home price appreciation, a development many housing industry experts would welcome. But higher rates could also dent home sales.

Email Matt Carter

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