Refinancing boom fizzles as interest rates rise from historic lows

Washington Post -- A rise in interest rates has put a damper on a mortgage refinancing boom, according to industry data released yesterday, and created another potential stumbling block to a housing recovery.

Mortgage interest rates, at historic lows for weeks, rose to 5.25 percent for a 30-year fixed rate loan last week, a level last seen in January. That led to a 16.2 percent seasonally adjusted drop in mortgage applications, according to the Mortgage Bankers Association's weekly market composite index, a measure of mortgage loan application volume.

The tumble mainly reflects a drop-off in refinancing activity. The index tracking refinancing applications fell 24.1 percent last week, while the purchase index increased 4.3 percent. Refinanced loans make up the majority of the market, but a smaller piece as of last week, according to the industry group.

"If you were looking to refinance for under 5 percent, this puts the brakes on that," said Guy Cecala, publisher of Inside Mortgage Finance.

Homeowners are more sensitive to interest rates when they refinance than when they purchase a home, analysts said. But as long as the housing market remains weak, every factor is amplified, they said. "This is going to be a head wind for the housing market," said Michael D. Larson, a housing analyst with Weiss Research. "It just shows that we shouldn't expect some [quick] recovery in housing."

The average interest rate on a 30-year fixed-rate mortgage increased to 5.25 percent last week from 4.81 percent the week before, according to the MBA. That was the largest increase since October 2008. It is now at its highest level since January, compared with a low of 4.61 percent in March. Original Article