Higher Mortgage Rates Aren't Keeping Buyers at Bay

Mortgage Loan Application
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By Diana Olick | @diana_olick

Rates aren't the driving factor for home sales. At least that's what the correlation between rate moves and mortgage applications to purchase a home suggests.

After several week-to-week declines in mortgage application, the numbers increased by 4 percent last week, according to the Mortgage Bankers Association. So did mortgage rates.

The MBA's seasonally adjusted index of mortgage application activity, which includes refinancing and home purchase demand, rose 1.9 percent in the week ended July 4.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.32 percent from 4.28 percent the previous week. The rise in rates did, however, affect applications to refinance, which rose just 0.4 percent from the previous week. Both refinance and purchase applications are down from a year ago, 46 percent and 10 percent respectively. The MBA adjusted this week's results to account for the Fourth of July holiday.

"Rates have adhered to this range for two months," noted analysts at Mortgage News Daily. "The visits to the lowest levels have been progressively [more frequent]. This could indicate that the longer-term momentum is pointing very slightly higher, and we'd need to see a move below late-June lows to rule that out."

The housing market continues to sputter into recovery, largely on the back of higher net-worth and cash buyers. The latter made up more than one-third of all May home sales. First-time buyers are still largely left out, hampered by tighter mortgage underwriting and high levels of student debt.

"Most of the consumer debt being taken on continues to be student loans which rose another $4.4 billion month over month, not seasonally adjusted, to $780.1 billion, a new record high," said Peter Boockvar of the Lindsey Group.

While some expect mortgage rates to rise dramatically by year-end, recent comments from Federal Reserve Chair Janet Yellen have other analysts changing their tune.

"Our rates strategists have revised down their year-end forecast of 10-year Treasury yields from 3.25 percent to 3 percent," Goldman Sachs (GS) analysts wrote in a note to investors. "We revise our mortgage rate forecast accordingly. We now expect mortgage rate to rise to 4.5 percent by year-end."

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