FHA, VA purchase activity shows signs of renewed interest

A rise in government-insured mortgage applications gave signals of returning market balance, but the uptick was tempered by further slowing of conventional loans, leading to reduced overall activity, the Mortgage Bankers Association said.

The MBA’s Market Composite Index, a measure of loan volumes based on surveys of association members, dropped for a second straight week, slipping 1.2% for the seven-day period ending August 19. Compared to the same time frame a year ago, mortgage volumes came in 63% lower. 

“Mortgage applications continued to remain at a 22-year low, held down by significantly reduced refinancing demand and weak home-purchase activity,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release.  

The Refinance Index decreased 3% from the previous week, with volumes now 83% below its level during the same period in 2021, as higher rates disincentivize borrowers. The share of refinances relative to overall application volume inched down to 31.1% from 31.2% a week earlier as well. 

The seasonally adjusted Purchase Index declined 1%, but activity in the lower-priced end of the market showed week-over-week momentum, despite a jump in 30-year interest rates. 

“Last week’s purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity,” Kan said.

The uptick in federally backed purchases also led the average loan size to fall for the second week in a row. The mean amount on new purchase applications slid 1.1% to $406,400 from $410,900. The average refinance amount also decreased to $269,000 from $271,600 a week earlier, declining 1%. Across the board, the average loan size inched down 1% to $363,700 from $367,400 the prior week.  

On the back of purchase activity, the seasonally adjusted Government Index rose 2.7%, with federal-agency backed loans also accounting for a larger share of overall volume from a week earlier. The portion of Federal Housing Administration-insured mortgages grew to 12.5% compared to 12%. Loans guaranteed by the Department of Veterans Affairs took an 11.6% share, up from 11.2% seven days prior, and applications coming through the U.S. Department of Agriculture made up 0.7% of the total, compared to 0.6% the previous week. 

Government purchases tracked higher, even as average interest rates among MBA members took a leap, Kan said. “Mortgage rates increased for all loan types last week, with the benchmark 30-year fixed rate jumping 20 basis points to 5.65% — the highest in nearly a month.”

One week earlier, the contract 30-year fixed rate for conforming balances of $647,200 or less had averaged 5.45%. Points increased to 0.68 from 0.57 (including the origination fee) for 80% loan-to-value ratio loans.

The contract fixed rate for 30-year jumbo loans with balances exceeding the conforming limit averaged 5.28%, up 14 basis points from 5.14% seven days earlier, with points increasing to 0.58 from 0.33.

The average 30-year contract fixed rate for FHA-guaranteed mortgage loans increased to 5.43% from 5.38% week over week. Points increased to 1.1 from 1.01.  

Meanwhile, the 15-year and 5/1 adjustable-rate averages also surged. The average rate of the 15-year contract fixed mortgage jumped 14 basis points to 5.01% from 4.87% the prior week, with points also increasing to 0.84 from 0.64.

The average of the 5/1 ARM rose to 4.81% from 4.43%. Points increased to 0.74 from 0.43. The steep rise of the adjustable-rate average helped reduce its share size relative to total volume to 6.5%, compared to 7% a week earlier. 

“The spread between conforming fixed-rate loans and ARM loans narrowed to 84 basis points from over 100 basis points the prior week,” Kan said. “This movement made fixed-rate loans relatively more attractive than ARMs, thereby reducing the ARM share further from highs seen earlier this year.”