New mortgage business slowed this past week, with refinance activity suffering the greatest setback. The drop in activity was accompanied by an increase in mortgage rates, and it looks like interest rates will be even higher in the next report.
At 219 for the week ended March 8, the U.S. Mortgage Market Index from Optimal Blue and Mortgage Daily was down 13 percent from a week earlier. But the index, which reflects rate locks completed by clients of Optimal Blue, was up a third from the same week during 2012.
Leading volume lower were rate locks for refinances, which tumbled 21 percent from the week ended March 1. Still, refinance volume was up more than a quarter from a year earlier.
Refinance share slipped to 43.6 percent from 47.6 percent and was lower than 45.1 percent in the week ended March 9, 2012. This week’s share was comprised of a 34.2 percent rate-term share and a 9.4 percent cashout share.
The second-worst performer this week was the conventional category, which was off 14 percent from the previous report. However, conventional business remains 42 percent higher than one year prior.
After that were rate locks for loans insured by the Federal Housing Administration, which declined 10 percent over the past seven days. FHA business was 4 percent higher, however, than the same week last year.
FHAÂ share inched up to 18.9 percent from 18.2 percent but was off from 24.2 percent in the year-earlier report.
Also down 10 percent for the week were rate locks for adjustable-rate mortgages. ARMÂ activity was 7 percent lower than 12 months prior. ARM share crept up to 4.5 percent from 4.4 percent but has retreated from 6.4 percent a year earlier.
Rate locks for home purchase financing were down 7 percent from the previous week but up 36 percent from a year ago.
The best-performing category this week, jumbo, saw a 5 percent drop over the prior report. But jumbo activity has more than doubled from one year prior.
Jumbo share, meanwhile, was 9.9 percent, up from 9.0 percent a week earlier and 6.5 percent a year earlier.
Jumbo mortgages were priced 17 basis points higher than conforming loans in the latest report, improving from the 19-basis-point jumbo premium last week. The jumbo-conforming spread has narrowed considerably from 49 BPS 12 months earlier.
Conforming 30-year fixed-rate mortgages averaged 3.875 percent, up from 3.857 percent last week but better than 4.192 percent in the same week last year.
Mortgage rates are positioned to see further increases based on today’s employment report, which indicated that the U.S. unemployment rate dropped to 7.7 percent in February from 7.9 percent in January.
In addition, nonfarm payrolls increased by 236,000 — far more jobs added than the 157,000 added during January and a bigger increase than expected by analysts.
News from the U.S. Labor Department had the Dow Jones Industrial Average climbing further into record territory early Friday, gaining 36 points over Thursday’s close. But as investors moved their funds into stocks and out of fixed-income investments, interest rates worsened — with the price of the 10-year Treasury note tumbling 14/32 in early trading. Treasury yields move up when Treasury prices decline.
Rising mortgage rates are likely to drive down refinance activity and lift ARM business. Originators, left with less refinance activity, will migrate to purchase financing and prod some consumers into a home purchase who otherwise might not have purchased a property.
The spread between 15- and 30-year mortgages increased to 80 BPS from the previous week’s 78 BPS — making shorter-term loans more attractive. Fifteen-year mortgages were discounted by 73 BPS during the same week last year.
