Mortgage rate increases dampen refinancing

With mortgage rates ticking up as investors anticipate the Federal Reserve raising interest rates in December, the cost of borrowing is increasing, and that's leading some new-home buyers to speed up their purchases, while discouraging homeowners from refinancing existing mortgages.

While mortgage applications for home purchases were essentially flat during the week ended Nov. 25 from the week earlier, refinancings dropped 16%. That meant overall applications fell 9.4%, according to Mortgage Bankers Association figures released Wednesday and adjusted to accommodate for the Thanksgiving holiday.

10 ways to lower your mortgage rate

MBA chief economist Mike Fratantoni projected that mortgage originations would fall in 2017 due to a sharp drop in refinancing. But he said in an email that new-purchase mortgages would increase about 10% in 2017 "based on the strengthening economy, employment and housing demand."

"The housing market will continue to do well so long as the job market remains strong, and we anticipate a further drop in the unemployment rate in 2017," Fratantoni said.

Average interest rates for 30-year fixed-rate mortgages hit levels not seen since July 2015, according to MBA. Rates for mortgages with balances of $417,000 or less were 4.23%, while rates for mortgages with balances of more than $417,000 were 4.18%.

"With mortgage rates going up, affordability is down," said David Berson, former chief economist of Fannie Mae and current chief economist at Nationwide Insurance, in an interview. But "affordability is still at a fairly high level."

Dave Liniger, CEO of brokerage franchisor RE/MAX agreed that higher rates shouldn't harm the housing market "at all." "In fact," he said in an email, "a rising interest- and mortgage-rate environment could actually cause an uptick in demand, with savvy buyers wanting to get into homes and lock in their rates more quickly."

Zillow senior economist Aaron Terrazas said in an interview that major life decisions and local housing inventory are bigger factors than interest rates for homebuyers.

Mortgages issued to purchase homes, rather than refinancing existing mortgages, are still humming along at an encouraging clip. Some "fence sitters" are buying now to avoid higher rates later, Berson said. What's more, the strong housing market and wage increases are encouraging many buyers to take the plunge. Even some notoriously cautious Millennials are increasingly jumping into the market. Rent increases averaging 5% might be a contributing factor for them.

How to tell if a reverse mortgage is right for you

"Renters are getting squeezed," said Lawrence Yun, chief economist of the National Association of Realtors, in an interview. "That will tip some financially qualified renters to begin thinking about homebuying."

Another factor: Lenders are starting to loosen standards for certain borrowers, Yun noted. That will open the door for more buyers.

"Consumers interested in a responsible and affordable home loan should be confident they can get one. That creates demand," RE/MAX's Liniger said.

Still, higher prices are crowding out some homebuyers. The S&P CoreLogic Case-Shiller Indices reported Tuesday that home prices hit a new all-time high in September, rising 5.5% from a year earlier and 0.4% from August. Prices averaged $184,800 in September, surpassing July 2006's peak of $184,620.

"Rising wages and more confidence in the economy will lead to more new-home purchases," said Bob Pozen, senior lecturer at the MIT Sloan School of Management, in an email. "But rising rates and house prices will be deterrents to such purchases."

Follow USA TODAY reporter Nathan Bomey on Twitter @NathanBomey.