Rising bond yields dent mortgage applications

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Mortgage applications turned lower last week as Treasury yields spiked following last week’s FOMC meeting.

For the week ending Sept. 24, purchase and refinance mortgage applications decreased 1.1% from the week prior, according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey.

The Refinance Index also decreased 1% from the previous week, but was 0.4% higher than the same week one year ago.

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The yield on the 10-year note rose for a sixth consecutive day on Tuesday to 1.534%, a three-month high.

Purchase and refinance mortgage applications turned lower last week in part due to rising bond yields as a rise in economic optimism pushed Treasury yields up after last week’s FOMC meeting. (AP Photo/Steve Helber)

"Increased optimism about the strength of the economy pushed Treasury yields higher following last week’s FOMC meeting," Joel Kan, MBA's associate vice president of economic and industry forecasting, said.

"Mortgage rates in response rose across all loan types, with the benchmark 30-year fixed-rate reaching its highest level since early July 2021," he added. "The increase in rates – mostly later in the week – led to a decrease in both purchase and refinance applications, with a prominent decline in government loan applications. Conventional loan applications increased, driven by a rise in conventional refinances. This was perhaps a sign that some borrowers reacted to higher rates and decided to refinance."

The FHA share of total applications slipped to 10.4% from 11.5% the week prior. In addition, the VA share of total applications decreased to 10.2% from 10.4% the week prior, with the USDA share of total applications decreasing to 0.4% from 0.5% the week prior.

"With home-price appreciation continuing to run hot, increasing more than 19 percent annually in July, applications for larger loan amounts continue to outpace lower-balance loans, Kan said. "The average loan size for a purchase application reached $410,000, its highest level since May 2021." 

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The refinance share of mortgage activity increased to 66.4% of total applications from 66.2% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.4 percent of total applications, the MBA reported.

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The survey covers over 75%of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990.

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