Mortgage origination activity drops to a 22-year low

The mortgage industry’s 2022 slide in originations continued, with numbers falling last week to levels not seen since the Clinton administration, according to the Mortgage Bankers Association.

The MBA’s Market Composite Index, a measure of mortgage activity based on surveys of association members, dropped a seasonally adjusted 6.5% for the weekly period ending June 3. The index also came in 55% lower compared to a year ago. Last week’s data included an adjustment for the Memorial Day holiday.  

“Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release. 

The Purchase Index fell 7%, seasonally adjusted, on a week-over-week basis. Compared to the same period in 2021, purchases were almost 21% lower. 

“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months,” Kan added. 

Housing prices have continued rising at record rates over the first half of 2022 due to ongoing competition for the limited supply available, contributing to decreased affordability. Several housing researchers have reported prices increasing at paces between 15% to 21% annually in the first few months this year. 

“These worsening affordability challenges have been particularly hard on prospective first-time buyers,” Kan said.  

Higher mortgage rates have had an even more noticeable effect on refinances, which are 75% lower compared to the same week a year ago. The Refinance Index dropped 6% week over week.

“While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity,” Kan said.  “Only government refinances saw a slight increase last week.” 

The share of refinances relative to overall mortgage activity increased, though, making up 32.2% of overall volume, compared with 31.5% seven days earlier. Adjustable-rate mortgages accounted for 8.2% of new loans, down from 8.7% the week prior.

After increasing last week, average application sizes took a step back across all categories, with the mean overall amount dropping 1.5% to $380,000 from $385,600. The average refinance size edged down 0.2% to $281,500 from $282,100 compared to the previous week. A larger decrease occurred among purchase originations, with the average loan amount dipping 1.5% to $426,900 from $433,200. Average purchase loan sizes soared to several record highs in the first quarter, but the recent pullback coincides with data from Redfin that showed an increasing number of sellers lowering their asking prices in May.

Despite the decrease in overall applications, seasonally adjusted government-sponsored activity picked up both by volume and share. The Government Index came in higher by a fraction thanks to the uptick in refinances. Federal Housing Administration-backed mortgages accounted for 11.3% of total activity, up from 10.8% seven days prior. Loans sponsored by the Department of Veterans Affairs increased to 11.4% from 10.2% of the overall pool week over week, while the share of applications coming via the U.S. Department of Agriculture remained at 0.5% 

Following recent decreases, interest rates among MBA lenders picked up across all loan types tracked by the association, but remain below their levels of four weeks ago.

The average contract interest rate for the 30-year fixed mortgage with conforming balances of $642,200 or less increased to 5.4% from 5.33% a week earlier.

The contract rate for 30-year jumbo loans with balances exceeding $647,200 averaged 4.99% up 6 basis points week over week from 4.93%.

The FHA-backed 30-year fixed mortgage rate rose 10 basis points to 5.3% from 5.2% the week prior. 

Contract interest rates for the 15-year fixed and 5/1 adjustable-rate mortgage also headed upward after falling the previous week. The average for the 15-year increased to 4.62% from 4.59%, while the 5/1 ARM climbed 5 basis points to 4.51% from 4.46%.