Are Rising Interest Rates Scaring the Housing Market?
The housing recovery theme is still in progress, but rising interest rates continue to scare consumers from mortgage applications and refinancing.
According to the Mortgage Bankers Association’s latest report for the week ending June 14, loan application volume decreased 3.3 percent on a seasonally adjusted basis from one week earlier. That is the fifth weekly decline in six weeks and comes after a 5 percent gain in the previous week. The figures include both refinancing and home purchase demand, and cover over 75 percent of all domestic retail residential mortgage applications.
The industry group’s Refinance Index also decreased 3 percent. The unadjusted Purchase Index dropped 4 percent, but is still 12 percent higher than the same time last year.
Overall, the refinance share of mortgage activity remained unchanged at 69 percent of total applications, compared to 68 percent at the beginning of the month – its worst level since July 2011.
Interest rates continue to trend higher and cause reason for concern in the real estate market, as chatter about the Federal Reserve “tapering” its bond-buying programs heats up. The average interest rate for a 30-year fixed-rate mortgage reached its highest level since March 2012 at 4.17 percent, up slightly from 4.15 percent in the previous week. The most recent average rate for a 15-year fixed-rate mortgage edged lower from 3.32 percent to 3.30 percent.
The latest Federal Open Market Committee minutes – released last month – ignited speculation about the Fed dialing down its presence in the market. The central bank explained, “A number of participants expressed willingness to adjust the flow of purchases downward as early as the June meeting if the economic information received by that time showed evidence of sufficiently strong and sustained growth.” The June meeting concludes this afternoon.
In morning trading, home builders such as PulteGroup (NYSE:PHM) and Lennar (NYSE:LEN) both declined nearly 1 percent. Meanwhile, home-improvement companies such as Home Depot (NYSE:HD) and Lowe’s Companies (NYSE:LOW) edged 0.45 percent and 0.20 percent lower, respectively.
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