Rising mortgage rates weren’t enough to stall the ongoing refinance boom in the new year, according to new data from the Mortgage Bankers Association (MBA).
The organization reported that the resilience in refi activity helped propel the most loan applications in nine months last week. The Market Composite Index (MCI), which the MBA maintains weekly to track mortgage application volume, rose 16.7% on a seasonally adjusted basis from the previous week, bouncing back from its typical holiday lull.
“Booming refinance activity in the first full week of 2021 caused mortgage applications to surge to their highest level since March 2020, despite most mortgage rates in the survey rising last week,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting.
“Even with the rise in mortgage rates, refinancing did not slow to begin the year, with the index hitting its highest level since last March. Both conventional and government refinance applications increased, with applications for government loans having their strongest week since June 2012,” Kan added.
Hope for further fiscal stimulus from President-elect Joe Biden’s incoming administration coupled with optimism from the coronavirus vaccine rollout drove mortgage rates upward to start January. Kan noted that while the 15-year fixed rate continued to a fall to a record low, the 30-year fixed rate rose two basis points to 2.88%.
But even with rates rising, the refinance share of mortgage activity increased to 74.8% of total applications, up from 73.5% the previous week. The MCI’s component Refinance Index rose 20% from the previous week and was 93% higher than the same week one year ago.
Purchase activity was likewise strong, according to Kan, and offered further hope of recovery at the market’s most affordable tiers.
“Sustained housing demand continued to support purchase growth, with [total purchase] activity up nearly 10 percent from a year ago,” he said. “The lower average loan balance observed was partly due to a 9.2 percent increase in FHA applications, which is a positive sign of more lower-income and first-time buyers returning to the market.”