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High Mortgage Rates Decrease Applications

Published on Monday - August 26, 2013

According to the Mortgage Bankers Association, a highly regarded research and economics group, increasing lending rates have lessened mortgage activity for a second consecutive week. A seasonally adjusted index, acknowledging both refinancing and home purchase demand, has recently identified a 4.6 percent decrease in the week ending on August 16. Applications for U.S. home loans have continued to drop after witnessing high mortgage rates.

The two-week decline on loan applications most likely serves as a testament to high mortgage rates on 30-year mortgages. Interest rates are growing too fast for prospective buyers, suggesting that great deals may be a thing of the past. Lending rates have now matched this year’s high, previously set in July at 4.68 percent.

Some professionals attribute the rise to talks of reducing recent stimulus incentives. As the Federal Reserve entertained the idea of scaling back their $85 billion in monthly bond purchases, interest rates were the subject of a steep increase in late May. Analysts predict the cutback may occur as soon as September, further increasing rates.

In responses to the possibility of a federal scale back, suggesting the tapering of stimulus activity, financial markets have begun to panic. As recent as this week, U.S. benchmark 10-year treasury yields settled at a two-year high, leveling off at 2.9 percent. The treasury yields are now more than a percentage point above their previous high in May.

High mortgage rates have simultaneously lowered demands for refinancing. Evidence of this regression was recognized on a recent refinance index. Refinancing activity decreased by 7.7 percent last week, the biggest digression we have seen since late June. The refinance share of total mortgage activity slipped to 62 percent from 63 percent the prior week.

While rates continue to exhibit a propensity for growth, they remain relatively low by historical standards. In fact, these rates still facilitate great deals in today’s market. The gauge of loan requests for home purchases, a leading indicator of home sales, rose 1.2 percent. This is after it fell 5.4 percent the previous week.

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