Mortgage interest rates have been rising all year, potentially shutting first-time home buyers out of the market. But the increase in mortgage rates is also affecting homeowners looking to refinance, with more than 1 million now unable to get into a cheaper loan product. That's according to data analytics company Black Knight, which said in a research report that the spike in interest rates has lowered the population of borrowers who can save money by refinancing their mortgages by close to 40% in 40 days.
According to Black Knight, in the first six weeks of 2018, about 1.4 million borrowers lost the interest rate incentive to refinance their home loans. That leaves around 2.65 million homeowners that could still benefit from refinancing their mortgages. The decline in the number of people who have an incentive to refinance is a stark difference from last year, with Black Knight finding that only 120,000 could not benefit from refinancing during the final 12 weeks of 2017. The surge in rates since then has changed all that.
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"That is the smallest this population has been since late 2008, prior to the initial decline in rates during the recession," Black Knight said of the 2.65 million that can still refinance into a cheaper mortgage. "Though the population is only 10% off its February 2017 mark, rate/term refinance production could see a more significant impact than this might suggest due to increasing burnout in the market." The firm noted that a drop in the average credit score of a person applying to refinance a mortgage typically happens when rates rise, adding yet another challenge to a segment of the mortgage market that saw steep declines last year. According to Black Knight, the total number of refinance originations declined 29% last year, with volume down 34% year over year, or $355 billion, in 2017.
Black Knight isn't the only one highlighting weakness in the refinance mortgage market. According to the Mortgage Bankers Association's Weekly Mortgage Application Survey, the refinance index declined 1% for the week ending Feb. 23, with the refinance share of mortgage activity decreasing to 41.8% of all applications. In the previous week, refinancing accounted for 44.4% of all applications.
With mortgage rates increasing all year, fears are starting to reverberate through the market that the spring real estate season could be harmed. After all, many of those who buy homes in the spring are first-time buyers and are very sensitive to price. If rates continue to march higher, it may shut some buyers out of the market. Add a dip in refinancing into the mix, and the mortgage market could be in store for some pain this spring.