Refinances plunge on interest rate spike

As interest rates rise, the number of refinances (and soon to be purchase money) decrease:

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.

Let's hope rates fall again, or our fragile recovery might be in jeopardy.

SOURCE: WASHINGTON POST