Demand for mortgages in US fell substantially in Q4

The number of mortgage applications dipped significantly in the fourth quarter of 2016, following the post-Trump victory interest rate spike.

Total mortgage applications fell 21 percent from the third quarter, according to data from the Mortgage Bankers Association cited by the Wall Street Journal. Demand for refinances also fell 31 percent, according to the report.

While the figures represent a small rise year-over-year, it’s not enough to inspire confidence in mortgage lenders. The fourth quarter bank earnings are due out tomorrow, and analysts expect lower mortgage-banking earnings, driven both by lower volume and a decline in profit margins.

Last month, the Federal Reserve raised interest rates for the first time in 2016 and indicated it will raise short-term interest rates more aggressively in 2017 than initially expected.  Bond yields and mortgage rates have been steadily rising since Donald Trump’s presidential victory, and hit a two-year high late last month.

The spike meant many lenders were left scrambling in the fourth quarter to keep loan volume going as consumers are now accustomed to rates below 4 percent, according to the paper. If rates remain high, it’s expected that mortgage volume will drop even more in the first quarter of 2017. Chris Whalen, the senior managing director at Kroll Bond Rating Agency, told the paper it will “fall off the table” in the first three months of the year. [WSJ] — Miriam Hall