Pace of Mortgage Refinancing Slows

The intense demand for home mortgage refinancing, which has soared over the past six months as mortgage rates have fallen, may finally be slackening.

Mortgage refinancing demand has been trending downward since peaking in early April, and declined another 11 percent in the first week of May, according to weekly survey by the Mortgage Bankers Association (MBA). Mortgage rates, meanwhile, have remained near all-time lows, suggesting that refinancing demand is gradually being sated.

New home financing trends upward

Demand for new purchase mortgages, on the other hand, has continued to rise, although modesty, during the same time, as first-time buyers take advantage of low interest rates and home prices, plus an $8,000 first-time homeowner tax credit, to become homeowners.

The MBA's Mortgage Refinance Index dropped to 4588.6 during the week ending May 8, according to the MBA's weekly survey, released yesterday. By comparison, the Refinance Index peaked at 6813.5 the week ending April 8. Prior to last fall, the index tended to fluctuate around the 2000 mark over the previous two years.

Mortgage rates down almost two percent in six months

Ironically, refinancings have been steadily increasing since the economic crisis hit last fall, due to a steady decline in mortgage interest rates. The MBA reported that average 30-year-mortgage rates stood at 6.47 percent the week ending Oct. 10, 2009; the current weekly report puts the figure at 4.76 percent. At their lowest in late March, the MBA reported them at 4.61 percent.

Ironically, rates had already dipped below five percent prior to the Federal Reserve's March announcement that it would purchase more than $1 trillion in Treasury bonds and mortgage-backed securities in order to boost lending, but the news served to send rates back down again and touched off a new frenzy of refinance activity. Prior to the refinance boom, mortgage refinancings were making up about 40 percent of all mortgage activity; more recently, they've been about 70 to 80 percent of the total.

Although mortgages for new home purchases have been gradually rising, such activity still remains well below pre-crash levels. The MBA's Purchase Index stood at 265.7 in the last survey; one year ago, it stood at 378.5, a 30 percent decline.