Mortgage Refinance Applications Hit 18-Year Low

July 12, 2018 — 2:14 PM EDT

Mortgage refinance applications hit their lowest level since December of 2000 as mortgage rates have increased through most of 2018.

According to data from the Mortgage Bankers Association (MBA), for the week ending July 6, mortgage applications increased 2.5% compared with a week earlier, while the Refinance Index decreased 4% from the previous week, marking an 18-year low. Both refinance and adjustable-rate mortgage application activity declined, with the refinance share of mortgage activity hitting its lowest level since August 2008. The adjustable-rate mortgage (ARM) share of activity decreased to 6.3% of total applications, the MBA said.

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While mortgage rates are moving closer to the 5% mark, they are still low from a historical perspective. During the week ending July 6, the MBA noted that the average interest rate for a 30-year fixed-rate mortgage with a loan balance of $453,100 or less decreased to 4.76% from 4.79%, while the rate for a 30-year fixed-rate mortgage with a loan balance above $453,100 fell to 4.68% from 4.71%. Many homeowners already had lower mortgage rates, and with the cost of borrowing rising, they have lost the opportunity to refinance their mortgage into a cheaper one.

That has been the case all year, with data analytics company Black Knight saying in March that more than 1 million homeowners had been shut out of the refinancing market because of rising rates. According to Black Knight at the time, in the first six weeks of 2018, about 1.4 million borrowers lost the interest rate incentive to refinance their home loans. That left 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.

In a video post, Rob Van Raaphorst, associate vice president of public affairs at the Mortgage Bankers Association, said that, while mortgage applications did tick up, weak inventory is holding back home sales, despite the strong economy. "There's no question we are moving to a purchase market. Refinances dropped to the lowest level since December 2000," he said.