Mortgage market slows as interest rates rise on shortened holiday week, MBA survey says

Mortgage rates started to rise last week before falling once again. This uptick caused a slowdown in new mortgage applications, especially for mortgage refinances. (iStock)

The mortgage market slowed down slightly over Memorial Day week, according to the Mortgage Bankers Association's latest weekly mortgage applications survey. 

The survey measured mortgage applications for the week ending June 4, 2021, and showed a decrease of 3.1% on a seasonally adjusted annual basis. That’s because, while mortgage rates ended up dipping slightly, that rate change didn't occur until the end of the week. Throughout the rest of last week, mortgage rates were up, offering homeowners less incentive to refinance their home loan. 

With interest rates low and projected to increase later this year, homeowners should take advantage of today’s rates environment by considering if refinancing is right for them. Contact Credible to see what your new mortgage rate – and potential savings – could be. 

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Are mortgage refinances becoming less popular?

The share of refinances dipped 5% last week and 27% year-over-year – but not all of that is due to market conditions. Experts explained that because Memorial Day was on a different week last year, the holiday slowed mortgage refinance applications considerably compared to the full non-holiday week last year. 

But that wasn’t the only thing driving mortgage applications up on an annual basis. 

"With fewer homeowners able to take advantage of lower rates, the refinance share dipped to the lowest level since April," said Joel Kan, MBA associate vice president of economic and industry forecasting. "Purchase applications were up slightly last week, and the large annual decline was the result of Memorial Day 2021 being compared to a non-holiday week, as well as the big upswing in applications seen last May once pandemic-induced lockdowns started to lift."

Overall, the refinance share of mortgage activity decreased to 60.4% of total mortgage applications, compared to 61.3% the previous week.

But today’s mortgage rates remain well below 3% for the fifth consecutive week with the 30-year fixed-rate mortgage averaging 2.75%. 

If you want to see how much you could save with a lower interest rate, check out Credible to compare multiple lenders at once. 

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For comparison, back in April, when mortgage rates were still above the 3% mark, mortgage data and technology firm Black Knight reported about 13 million homeowners could still benefit by refinancing their mortgage, saving about $283 a month each. 

Black Knight defined those homeowners as ones with credit scores of at least 720 or higher, who hold at least 20% equity in their home, are current on their mortgage payments and could decrease their interest rate by at least 0.75 percentage points. But there are more programs available today that would allow homeowners who fall below those thresholds to benefit from refinancing. 

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Rising interest rates and home prices make affordability a challenge

The MBA’s report showed the average loan amount dipped slightly but remains significantly higher than last year’s average as home prices rise

"The average loan size on a purchase application edged down to $407,000, below the record $418,000 set in February, but still far above 2020’s average of $353,900," Kan said. "Home-price growth continues to accelerate, driven by favorable demographics, the recovering job market and economy, and housing demand far outpacing supply."

In April, according to Black Knight's latest mortgage monitor report, home prices appreciated 14.8% – the highest growth rate ever seen by the firm, which has been tracking the mortgage market since the mid-1990s. This marks 17 consecutive months of home price increases, and has pushed back against affordability. At the beginning of June, homebuyers’ share of median income needed to purchase a median-priced home surpassed its five-year average of 20.1% and hit 20.5%.

"In recent years, 20.5% has roughly been the tipping point at which appreciation begins to decelerate, but given the severity of inventory shortages, home prices have – at least for now – continued to sharply accelerate even in the face of tightening affordability," said Ben Graboske, Black Knight's president of data and analytics.

While this makes a challenging market for homebuyers, homeowners have benefited from appreciating home prices. For many, the equity increase is yet another reason why refinancing their mortgage could be beneficial – such as if they are looking to remove mortgage insurance, which stays on an FHA loan but falls off a conventional loan after hitting 20% equity in the home. 

If you're a homeowner and want to explore how you could benefit from a mortgage refinance, visit Credible to compare rates from multiple lenders, and get preapproved in just minutes. 

The trend of rising home prices may not be long-term

But the rapid growth in home appreciation may not be sustainable. Black Knight explains why with these scenarios:

  • If appreciation keeps at its current rate and 30-year rates slowly rise to 3.5% by the end of 2022, the national payment-to-income ratio would hit 21.6% by the end of this year and 25% by 2022. With rates at 4% by the end of 2022, affordability would hit 22% by the end of this year and 26.7% by the end of 2022.
  • If home values continued to rise at their current rate and 30-year rates rose to 4.5% by the end of next year, the payment-to-income ratio would rise to 22.5% by the end of this year and climb above 28% by the end of 2022.

Black Knight explained that rising rates and tightening affordability may ultimately result in a slow-down in home price growth. But, with today's housing inventory shortages, it may not happen for a while.

Home prices aside, interest rates are predicted to rise through the remainder of this year and into 2022 – and there are still millions of homeowners who could benefit from refinancing their home loan. 

To see if you can take advantage of current low rates, contact Credible to speak to a mortgage loan expert and get your questions answered today. 

Have a finance-related question, but don't know who to ask? Email The Credible Money Expert at [email protected] and your question might be answered by Credible in our Money Expert column.

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