High Rates Suppress Refinancing

Per the Mortgage Bankers Association (MBA), through the week ending June 3, total mortgage activity decreased, with the 30-year fixed-rate mortgage (FRM) rate increasing to 5.45%, on average. The latest week’s rate increased to 5.4%, after 3 consecutive weeks of declines, each by a few basis points. The Market Composite Index, a measure of mortgage loan application volume, decreased by 6.5% on a seasonally adjusted basis from one week earlier, with purchasing decreasing by 7.1% and refinancing decreasing by 5.6%.

Historically, refinancing has always been higher than purchasing activity. The recent months’ data, however, indicate that the gap between the levels of purchasing and refinancing has narrowed significantly, with May’s refinancing activity 3.4 times greater than purchasing activity. In contrast, throughout the pandemic, refinancing levels relative to purchasing levels were in the low double digits.

The MBA states that high rates have suppressed refinancing and that rates and low housing inventory have negatively affected the purchasing market. Worsening affordability challenges have been particularly hard on prospective home buyers.

On an unadjusted basis, the Purchasing Index showed a 21% year-over-year decline and the Refinancing Index showed a 75% year-over-year decline. Comparison of the year-over-year percent changes in refinancing and purchasing shows that from October 2021 to present, refinancing has been hit harder.

The refinance share of mortgage activity increased to 32.2 percent of total applications from 31.5 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 8.2 percent of total applications.

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