Mortgage Applications Show Little Gain Amid Rising Rates

March 8, 2018 — 1:22 PM EST

Mortgage applications for the week ending March 2 eked out only minor gains as interest rates on home loans continued to march higher.

According to the latest data from the Mortgage Bankers Association (MBA), mortgage applications increased 0.3% compared with the week earlier, which included an adjustment for the President's Day holiday. On an unadjusted basis, the index increased 13% week over week. The refinance index increased 2% from the previous week, while the seasonally adjusted Purchase Index decreased 1%. On an unadjusted basis, the index increased 13% compared with the previous week and was 1% higher than the same period a year ago.

[Figure out how much home you can afford with our mortgage calculator.]

The MBA said that the refinance share of mortgage activity was unchanged for the week, while the share of applications for adjustable-rate mortgages, or ARMs, increased to 7.3% of all applications. According to the association representing the real estate finance industry, this marks the highest level for ARMs since June 2017. Meanwhile, Federal Housing Authority (FHA) loan applications decreased to 10.1% of total loan applications from 10.3% the week earlier, while Veterans Administration mortgage applications decreased to 9.9% of all applications from 10.7% the week earlier.

The lackluster growth in mortgage applications for the first week in March comes amid rising mortgage rates, which has been the trend since the start of 2018. According to the MBA, the contract interest rate for a 30-year fixed-rate mortgage with a loan balance of $453,100 or less hit its highest level since January 2014 at 4.65%. That's up from 4.64% in the week prior. For 30-year fixed-rate mortgages on loans that are above $453,100, the rate decreased to 4.56% from 4.57%. Interest rates on FHA-backed 30-year fixed-rate loans were unchanged, noted the MBA.

The rising mortgage rate environment is worrying some industry watchers that the spring selling season will be harmed. After all, many first-time buyers shop during the spring and tend to be sensitive to prices and interest rates. Even a slight uptick in mortgage rates can shut some buyers out of the market.

The rising rates have already resulted in precluding more than 1 million homeowners from applying to refinance their existing mortgages into a cheaper loan. According to data analytics company 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.