If you have clients sitting on the fence, the current state of interest rates might just be enough to spur them to buy before anticipated increases become reality.
A recent increase in interest rates let to an increase in mortgage applications. Initially, it could be attributed to borrowers jumping to refinance their current loans, worried that the long run of record low rates is over.
According to a CNBC report, total mortgage application volume for the week rose 4.1 percent, seasonally adjusted, according to the Mortgage Bankers Association. Volume rose 5.6 percent from a year ago.
Applications to refinance a home loan led the charge, rising 4 percent for the week. Refinances are usually highly sensitive to even small moves in interest rates, which is why the gains aren’t following normal patterns. Interest rates rose to their highest level since March.
According to CNBC, the 30-year fixed-rate mortgages with conforming loan balances ($453,100 or less) increased to 4.33 percent, from 4.23 percent, with points increasing to 0.54 from 0.35 (including the origination fee) for 80 percent loan-to-value ratio loans.
There are several factors at play, corrding to MBA Economist Joel Kan.
“Treasury yields moved higher on average last week, based on news that both Japanese and European economic growth is strengthening, along with concern that China may reduce U.S. Treasury holdings in the near future. Despite the increase in rates, applications increased both for purchase and refinance. These increases were partly due to an upswing following the holiday season lull and potentially more borrowers trying to refinance before mortgage rates increase further.”
Mortgage applications to purchase a home, which are less rate-sensitive week to week, rose 3 percent last week and were 7 percent higher than the same week one year ago.
For agents and brokers, this could signal that homebuyers are trying to get a jump on the spring market, given how competitive the market has been.
Supply remains an issue, with a fewer homes for sale driving prices higher. Generally, there are fewer buyers out in January and clients who are willing to brave the cold could be at an advantage.
Mortgage rates didn’t move much to start the week, but they are now testing new highs. The possibility of a government shutdown could reverse the recent gains, but for now at least, the trend appears to be higher.