Applications for home purchase loans fell in the latest week, backing out the previous week's gain as mortgage rates rose from a four and a half month low.
Mortgage applications dropped 7.0 percent in the week of November 1st, according to the Mortgage Bankers Association an industry group, after a 6.4 percent gain the prior week. This includes loans for both original purchases and refinancing.
The percentage of loans used for refinancing slipped to 66.1 percent from 66.5 percent. Refinancing peaked in early December 2012 when 84.0 percent of all mortgage applications were for replacement mortgages. The rate on a 30-year mortgage fell to a historical low of 3.36 percent in the first week of the month.
The amount of refinancing activity fell 25 percent in the first nine months of this year from 82 percent in January to 57.0 in the first week of September. They have since rebounded about 10 percent.
The decline in refinancing activity this year coincided with a steady rise in mortgage rates. Rates on 30-year mortgages climbed in the first quarter of the year from 3.40 in January to 3.67 percent at the end of March according to Bankrate.com. They dipped slightly to 3.42 percent in the next month and then rose sharply to 4.46 percent by the end of August.
The steep rise in rates in the spring and summer was largely a response to comments from Ben Bernanke, the Chairman of the Federal Reserve, in May, June and July that seemed to indicate the bank was considering reducing the $85 billion a month in Treasuries and mortgage-backed-securities purchases that it had been using to keep market interest rates at thier historic lows.
Although the Fed ended that speculation at the September 18th FOMC meeting when it kept the purchase amount at $85 billion, saying the economy was not strong enough to remove rate support, mortgage rates have not returned to below 4.0 percent.
From April to July the weekly average of rates on a 30 year mortgage rose 121 basis points from 3.43 percent to 4.64 percent. As of yesterday it had only returned 42 points to 4.23 percent.
Recent comments from the Fed may indicate the bank is again considering a reduction in the purchase amount at its December FOMC meeting, but the majority of analysts expect the purchase program to continue full bore well into 2014, particularly under the assumed new chairman Janet Yellen.
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