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The wave of refinancing that many economists viewed as a bright spot in the economy is quickly subsiding as mortgage rates continue to climb.
An index tracking mortgage applications fell for the fifth straight week as interest rates rose to the highest level since the end of June, officials with the Mortgage Bankers Association of America said Wednesday.
'The majority of the wave is over,' said Teri Knight, a loan counselor at First Horizon Home Loans in Glendale. 'How many people missed their opportunity to refinance? It's hard to say.' Interest on a 30-year fixed-rate mortgage averaged 7.3 percent with an average 0.8 points on Wednesday, according to HSH Associates, a Butler, N.J.-based publisher of mortgage information.
The Mortgage Bankers' index, which includes purchase and refinance loans, fell 18.9 percent in the week that ended last Friday to 562.4, the lowest since the week ended Sept. 14. Refinances, which have accounted for the bulk of mortgage activity for several months, fell to their lowest level since mid-August.
Mortgage refinancing is on track to reach an all-time high of $ 1 trillion this year, but some economists predict that future refinancings will dip significantly because of rising interest rates.
'We've seen refinance activity fall by two-thirds over the last five weeks, and I suspect that we'll see a further decline,' said Steven Wood, chief economist, a provider of economic and financial information based in Walnut Creek, Calif.
Historic low mortgage rates, which slipped below 6.5 percent in early November, have kept the recession from being much worse by propping up the housing market and giving homeowners more cash through refinancing, he said.
'It's unlikely that we're going to get any additional stimulus from refinance activity,' Wood said. 'Refinancing at current interest rates is not going to free up any more cash flow for most households.'
Debi Taylor, senior vice president at a Mortgage company, said mortgage activity typically slows around the holidays and should pick up again after Jan. 1. While they're higher than they were a few weeks ago, interest rates are still good in comparison to previous years, she said.
'I think that rates are going to fall again,' she said.
Wood agrees that mortgage rates might dip again, but said it's unlikely that they will drop back below 7 percent.
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