The picture does not seem good.
Two weeks after the Federal Reserve has increased the interest rate by a quarter point to a range of 0.25 to 0.5 percent for the first time in almost a decade, mortgage applications has dropped down to a dramatic 25 percent.
CNBC reports that overall, a 27 percent decrease has been recorded, based on a seasonally adjusted figures for the week that ended Friday, in comparison to the applications received two weeks prior, according to Mortgage Bankers Association. These numbers were accordingly adjusted for the Christmas and New Year holidays when banks are closed and no transactions could be had.
There is a higher decrease to the most rate-sensitive aspect which is the refinannce applications, the decrease reached to as much as 37 percent from two weeks ago, also seasonally adjusted. In addition, applications to buy a home also declined by 15 percent-another huge drop since it was 22 percent higher on the same period 12 months ago, CNBC continues.
Lynn Fisher, the Association's vice president of research and economics said, "Refinance application volume increased for three weeks in a row in early December ahead of the Fed's announcement that it was raising the federal funds rate. During the two weeks following their announcement, holiday-adjusted refinance activity dropped substantially, even though the 30-year fixed rate increased by only 4 basis points over the same period."
CNBC adds that last week, there is an increase of 4.20 percent in the average contract interest rate for a 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) compared to the previous week. It is the highest recorded since July last year from 4.19 percent, with points decreasing to 0.42 from 0.49 (including the origination fee) for 80 percent loan-to-value ratio loans.
Overall, mortgage rates can still be considered historically low and it cannot be seen as the reason for the slowdown in home sales, which started to plunge in November. The tight supply of homes and the rising home prices have contributed to weak sales.
In a related matter, CNBC adds, "Mortgage delinquencies are falling as home prices rise and the foreclosure pipeline clears. In October, 90-day mortgage delinquencies stood around 4.8%. Delinquencies peaked around 10% and have now fallen back to their pre-bubble historical range of 4%-5%, according to Black Knight Financial Services, formerly known as Lender Processing Services."
