Mortgage Applications Dip as Rates Stay Above 6%, Discouraging Refinancing

Mortgage applications retreated during the week leading up to the Fourth of July weekend, driven down by a drop in refinancing applications as borrowing cost rates remained high, according to the Mortgage Bankers Association.

For the week ending on July 3, MBA's Market Composite Index—a measure of total mortgage loan application volume—decreased 2.2% on a seasonally adjusted basis from one week earlier.

"Mortgage application volume was little changed during the week of the nation's 250th Independence Day celebration, as the 30-year fixed rate increased slightly to 6.58 percent," says MBA's chief economist Mike Fratantoni. "After adjusting for the Independence Day holiday, government purchase volume increased modestly, led by a 5 percent gain in VA purchase applications, while conventional purchase activity declined."

The seasonally adjusted Purchase Index, a leading indicator for home sales, ticked down 1% from one week earlier. Meanwhile, the index tracking refinance activity dropped 4% from the previous week.

"Refinance application volume was down 4 percent, as homeowners saw little enticement to act with rates still elevated," says Fratantoni.

Based on MBA calculations, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 6.57% to 6.58%.

Freddie Mac, however, put average 30-year rates at 6.43% for the week ending July 2, down from 6.49% the previous week, following the tentative U.S.-Iran peace agreement.

Rates have been stuck above the 6% benchmark since the outbreak of the conflict in the Middle East in February, which sharply drove up oil prices and triggered inflation fear. While the resulting economic uncertainty has cooled borrowing, the spring housing market has proven itself surprisingly resilient.

The Federal Housing Administration share of total applications decreased to 16.4% from 16.9% the prior week. The Veterans Affairs share of total loan applications inched up from 12.9% to 13% from the prior week. The USDA share of total applications rose slightly to 0.5% from 0.4% the prior week.

Mortgage rates calculated

Mortgage rates are calculated based on various factors in the economy, and the length of your loan will also figure into the mortgage rate you qualify for.

The 30-year mortgage rate is tied to the yield of the 10-year Treasury note, according to Fannie Mae. As the yield on the 10-year Treasury note moves, mortgage rates follow.

The yield on the 10-year Treasury note is determined by expectations for shorter-term interest rates in the economy over the duration of a bond, plus a term premium.