Demand for home loans drying up as mortgage rates continue to climb.
A rise in interest rates dampened demand for home mortgage refinancings and loans for home purchases last week, an industry survey reported Wednesday.
The drop in demand diminishes the key support that housing has provided the U.S. economy in recent years.
Rates for 30-year loans, the most commonly used home mortgage, rose to 5.87 percent in the latest week from 5.72 percent in the previous week, according to the Mortgage Bankers Association of America.
Demand for refinancings as measured by the trade group's refinance index plummeted 32.9 percent to 4,145.8 in the week ended July 25. The purchase index, the measure of demand for loans to buy homes, fell 3.5 percent to 426.9.
Record home sales and refinancings have been an important support for a struggling economy in recent years because it encourages spending as owners outfit their new homes with furniture and appliances.
Low rates have allowed many homeowners to cut borrowing costs by refinancing their loans. Many owners have withdrawn equity from their homes with the help of cash-out refinancings and used the money to pay down debt or support spending on goods and services.
"Obviously, there is a strong relationship between refi activity and mortgage rates. The refinance market is going to take a hit," said Richard Green, principal economist at Freddie Mac.
At the same time, Green said there are factors other than low borrowing costs that drive demand for homes.
"As to home buying, the market is more complex. It is not just interest rates, but about people's expectations about home prices in the future, the cost of rent and alternative investment opportunities," Green noted. "The stock market uncertainties will cause people to put money into the housing market."
So, while higher borrowing costs are sure to drive down demand for refinancings, housing could remain strong.
"There are still people refinancing. There are procrastinators, but the vast majority have done so," said Chris Low, chief economist FTN Financial. "They are coming in [to lenders] under the impression that rates are at lows and then obviously they are disappointed."
Looking ahead, Low said home sales could jump in July as stragglers look to buy homes before rates rise further. "Some people will have rate locks they'll push to get done," he said, adding "you will see a rise in home sales, then activity should peter out pretty quickly after that."
"In coming months, cash flow to homeowners will start to dry up," Low said. "Refis will be a negligible component of the economy if rates are at this level or higher by year-end."
A rise in interest rates dampened demand for home mortgage refinancings and loans for home purchases last week, an industry survey reported Wednesday.
The drop in demand diminishes the key support that housing has provided the U.S. economy in recent years.
Rates for 30-year loans, the most commonly used home mortgage, rose to 5.87 percent in the latest week from 5.72 percent in the previous week, according to the Mortgage Bankers Association of America.
Demand for refinancings as measured by the trade group's refinance index plummeted 32.9 percent to 4,145.8 in the week ended July 25. The purchase index, the measure of demand for loans to buy homes, fell 3.5 percent to 426.9.
Record home sales and refinancings have been an important support for a struggling economy in recent years because it encourages spending as owners outfit their new homes with furniture and appliances.
Low rates have allowed many homeowners to cut borrowing costs by refinancing their loans. Many owners have withdrawn equity from their homes with the help of cash-out refinancings and used the money to pay down debt or support spending on goods and services.
"Obviously, there is a strong relationship between refi activity and mortgage rates. The refinance market is going to take a hit," said Richard Green, principal economist at Freddie Mac.
At the same time, Green said there are factors other than low borrowing costs that drive demand for homes.
"As to home buying, the market is more complex. It is not just interest rates, but about people's expectations about home prices in the future, the cost of rent and alternative investment opportunities," Green noted. "The stock market uncertainties will cause people to put money into the housing market."
So, while higher borrowing costs are sure to drive down demand for refinancings, housing could remain strong.
"There are still people refinancing. There are procrastinators, but the vast majority have done so," said Chris Low, chief economist FTN Financial. "They are coming in [to lenders] under the impression that rates are at lows and then obviously they are disappointed."
Looking ahead, Low said home sales could jump in July as stragglers look to buy homes before rates rise further. "Some people will have rate locks they'll push to get done," he said, adding "you will see a rise in home sales, then activity should peter out pretty quickly after that."
"In coming months, cash flow to homeowners will start to dry up," Low said. "Refis will be a negligible component of the economy if rates are at this level or higher by year-end."
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