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Treasury rate jump leads to slow week for refinances

Despite optimistic forecasts boosted by a sustained refinance surge, refi activity fell in the short term thanks to a recent bump in U.S. Treasury rates.

The shift was noted by the Mortgage Bankers Association (MBA) during its weekly mortgage applications survey, which saw mortgage application volume retreat 0.1% from the prior week. The small drop was driven by a 4% decrease in refinance volume, enough to push the needle downward despite a 6% weekly gain in the purchase index.

“The jump in U.S. Treasury rates at the end of last week caused mortgage rates to increase across the board, with the 30-year fixed-rate mortgage climbing to 4.01 percent — the highest in seven weeks,” said Joel Kan, MBA's associate vice president of economic and industry forecasting. “Refinancing activity dropped as a result, driven solely by conventional refinances.”

The refinance share of mortgage activity fell last week to 57.9% of total applications, down from 60% in the week prior.

The near-term refinance decline may prove to be temporary, given the potential of Wednesday's Federal Reserve rate cut to send mortgage rates even further toward historical lows. Longer-term measures of the refi market have been decidedly positive. Ellie Mae observed on Wednesday that refinances jumped by 5% month over month in August. Last week, the MBA noted that August was the strongest month for refi activity in 2019. And Fannie Mae projected an 11.6% increase in the dollar value of loan-origination volume this year, anchored by 5% growth in refinance share.

The purchase market, on the other hand, continued a recent trend of health. MBA’s purchase volume index rose for the third week in a row and now rests at its highest reading since July, according to Kan.

“Additionally, the average loan amount on purchase applications increased to its highest level since June," Kan said. "This is a likely a sign that the underlying demand for buying a home remains strong, despite some of the recent volatility we have seen.”


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