Why mortgage applications plummeted when interest rates increased
Mortgage applications fell
Mortgage applications, as reported by the Mortgage Bankers Association, fell 3.5% for the week ending March 21, as mortgage rates spiked.
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Purchase applications rose 3.0% in the March 21 week but failed to lift the year-on-year rate which was down by 17.0%. The refinance index fell 8.0% in the week. Mortgage rates rose in the week with the average 30-year mortgage for conforming loans up 6 basis points to 4.56%.
Mortgage applications are primarily interest-rate driven. Applications typically increase when rates fall because home owners take advantage of the drop in rates to refinance. They also exhibit a seasonal pattern, correlating with purchase activity during the summer selling season.
Past few weeks’ activity mostly remained mixed. However, with the strengthening of the economy and the approaching summer season, purchasing activity is expected to increase, and refinance may decline. The decline in the refinancing activity is also associated with the fact that the Fed is expected to raise interest rates six months after the conclusion of the bond buying program. The bond buying program is expected to end by October or November, 2014. The rise in the purchase activity may boosts the profitability of the mortgage companies such as Annaly Capital Management, Inc. (NLY) and Wells Fargo & Company (WFC).
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