Potential Buyers Step Back Even as Mortgage Rates Decline

Potential buyers could be taking a temporary step back from the housing market as the volume of mortgage applications declines even though fixed and adjustable rates continue to fall.

Bankrate, whose survey ran from Wednesday May 10 to Wednesday May 17, is reporting falling rates for nearly all variations of mortgages across the board. A benchmark 30-year fixed mortgage is down to 4.15 percent from 4.22 percent last week across the nation, the lowest it’s been in five months; while a jumbo 30-year fixed fell to 4.08 percent. A 15-year fixed sunk 0.21 points from 3.48 percent to 3.35 percent.  Even a five-year adjustable rate mortgage dropped to 3.42 percent. Seven-year adjustable returned to its value two weeks prior, sitting at 3.72 percent. Bankrate attributes the dip in mortgage rates to rumors that the Federal Reserve will raise short term interest rates in June. This, coupled with higher yields in long-term government bonds and decreased rate of inflation creates an ideal condition for decreased rates.

Freddie Mac also recorded weekly drops in mortgage rates, although the report closed before Wednesday saw a flight to quality, which could skew next week’s report and show even further drops. Still, all mortgage rates remain higher than they were a year ago.  A 30-year fixed dropped an average of 0.5 point to 4.02 percent from 4.05 percent last week. This time last year, average rates for a 30-year FRM were as low as 3.58 percent.

Similarly, a 15-year FRM dropped from 3.29 percent to 3.27 percent this week (2.81 percent last year); and five-year ARM fell 0.5 point to 3.13 percent from 3.14 percent (2.80 percent last year).

The Mortgage Bankers Association, in their weekly survey ending Monday, May 12, disclosed that mortgage applications and activity have decreased over the last seven days. Mortgage loan applications have dropped 4.1 percent on a seasonally adjusted basis, and four percent on unadjusted. And while the refinance index has decreased six percent, refinance mortgage activity has dropped to 41.1 percent of the total applications. ARM share of activity has also dropped to 8.1 percent.

But, while activity has dropped, the average loan size for applications that have been pushed through this week is on the rise, reaching a record high of $322,300.