According to the Mortgage Bankers Association, applications for U.S. home loans rose for the first time in four weeks. The reason? A fall in mortgage rates. The firm’s seasonally adjusted index of mortgage application activity, which includes both refinancing and home purchase demand, rose 1.3% in the week ending August 30, after sliding 2.5% the previous week. The increase came as 30-year mortgage rates fell to 4.73% versus the 4.80% from the prior week.
Borrowing costs, however, have climbed by more than a percentage point since late May on the view that the Federal Reserve will soon reduce its monthly bond purchases, which have kept a ceiling on rates.
Most of the activity came from refinance applications. New purchase applications actually dipped 0.4% while the refinance index rose 2.4% last week. The refinance share of total mortgage activity rose to 61% from 60% the previous week – the lowest since April 2011.
While housing has largely aided in the recovery, economists expect the pace of value increase to slow down for the remainder of this year and in the next. There is speculation that rising rates are deflating the recovery machine, but they still remain low by historical standards and most economists do not expect the higher costs to halt the recovery altogether. In fact, in the short-term, it could provide incentive for potential buyers to act before rates rise even more.Tweet