Mortgage rates once again surged upwards, hurting prospects for a quick recovery in the housing market. This morning the Mortgage Bankers Association's Loan Application survey said demand for loans in the first week of June fell 7.2% compared to the previous week, as the average rate for a 30-year mortgage shot up 32 basis points to 5.57%.
This is only the second consecutive week that average rates have exceeded 5.00%, but already they are at their highest level since November.
“Since bottoming at around 4.61% in March, lending rates have trended higher and, over the past few weeks, have cooled refinancing activity, although new purchases are still rising,” said economist Jennifer Lee from BMO Capital Markets.
With mortgage rates at historic lows in recent months, demand for homes had been increasing and many analysts said there were signs of stabilization in the housing market. Rising interest rates, however, will encourage potential buyers to remain on the sidelines.
Last week, Christina Romer, chairman of the White House’s Council of Economic Advisors, voiced some concern about the upward trend in rates.
“The refinancing boom that we've had in the last 3-4 months has been very good for consumers,” she said. “It's really kind of acted like a tax cut when you have your mortgage payment go down, so obviously we'd be happier if mortgage rates were lower and we're just going to have to see, again, sort of how all of this plays out.”
The MBA survey also said its Refinance Index fell 11.8% in the week, while the Purchase Index was able to advance 1.1%. Demand for refinance loans has been falling rapidly recently, accounting for just 59.4% of all applications last week ― the lowest share of activity since November. In the prior week, 62.4% of all loans were refinance-related.