Drop In Rates Spurs Mortgage Refinances

Mortgage Applications
Al Behrman/AP
By Diana Olick | @diana_olick

Mortgage applications edged slightly higher last week, as rates fell to their lowest level since November.

Applications rose 3.6 percent on week. However, the move was entirely due to a 7 percent gain in refinances, according to the Mortgage Bankers Association. Meanwhile, applications to purchase a home fell less than one percent on week but dropped 12 percent on year.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.39 percent from 4.43 percent. Concerns over whether or not the European Central Bank might undertake easing measures at its June policy meeting spooked equity markets last week. Lackluster retail sales this week didn't help matters. As investors flee to the relative security of the bond market, yields fall, and interest rates loosely follow those moves.

"We always get some response to any move to periodic highs/lows in rates. Some magic percentage of mortgage holders are always needing or wanting to refinance, and some percentage of that percentage is flexible as to their lock time frame," said Matthew Graham, chief operating officer of Mortgage News Daily. "Those are the folks that make the applications numbers move the most. In general, they're locking more as rates are hitting periodic lows."

Refinances, which had comprised around 80 percent of the market when rates hit rock bottom a little over year ago, are now just 50 percent of all loan applications; their volume is down more than 70 percent from a year ago. Purchase applications were expected to pick up some of the slack this spring, but demand hasn't proved as robust as some had hoped.

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