Mortgage applications increased two percent compared to a week earlier driven mainly by an increase in government refinancing, according to data collected from a Mortgage Bankers Association’s (MBA) survey collected for the week ending Dec. 3.
The surge was primarily due to the refinance index increasing nine percent from the prior week on a seasonally adjusted basis. At the same time, the purchase index fell five percent from the previous week.
“Mortgage rates declined for the first time in a month, prompting a pickup in refinancing, with government refinances increasing more than 20 percent over the week,” Joel Kan, MBA’s associate vice president of economic and industry forecasting, said in a statement.
While the refinance share of mortgage activity of total applications went up by 63.9 percent from 59.4 during the previous week, the adjustable-rate mortgage (ARM) went down by 3.0 percent.
The Federal Housing Administration (FHA) share of total applications went up to 9.9 from 8.9 percent the previous week, meanwhile, the USDA share remained unchanged at 0.5 percent.
Although the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) contracted from 3.31 to 3.30 percent, mortgages with jumbo loan balances (greater than $548,250) went up from 3.27 to 3.33 percent.
Interest rates for mortgages backed by the FHA also declined from 3.42 to 3.35 percent with points going down from 0.35 to 0.32 for 80 percent LTV loans, which includes the origination fees.
“While the 30-year fixed mortgage rate and 15-year fixed mortgage rate both declined only one basis point, the FHA rate fell 7 basis points, driving the surge in government refinances. Borrowers are continuing to act on these opportunities, but if rates trend higher as MBA is forecasting, the window of opportunity to refinance will continue to get smaller,” said Kan.
For 15-year fixed-rate mortgages, the average contract interest rate went down from 2.63 to 2.62 percent. However, for 5/1 ARMs, the rate increased from 2.48 to 2.98 percent from last week.
The trade group has conducted the survey since 1990 and covers more than 75 percent of all U.S. retail residential mortgage applications, with respondents including commercial banks, thrifts, and mortgage bankers.
The rise in refinance demand is not expected to last. Omicron fears caused a brief drop in mortgage rates last week but the markets have since rebounded, and rates are now up by 11 points, according to Mortgage News Daily.
Rates are affected by the 10-year U.S. Treasury yield, and Federal Reserve Chair Jerome Powell will likely decide to speed up the tapering to $30 billion a month in its meeting next week. This could result in higher interest rates as early as spring.