Mortgage activity increases for second straight week

After mortgage applications had been coming in at their most sluggish pace in years, activity increased for two consecutive weeks. However, that amount is still well below the level from a year ago, the Mortgage Bankers Association said.

The MBA’s Market Composite Index, a measure of weekly application volumes based on  surveys of MBA members, rose a seasonally adjusted 4.2% for the period ending June 17. But compared to the same seven-day stretch in 2021, volumes were 53% lower. 

The upward move came largely thanks to increased purchase activity despite a spike in interest rates, while refinance volumes dropped further. The Refinance Index fell 3% from the previous week, with new applications 77% below their level of a year ago. 

Meanwhile, the seasonally adjusted Purchase Index climbed for a second week, jumping 8% week over week.  

“Purchase applications increased for the second straight week — driven mainly by

conventional applications,” said Joel Kan, associate vice president of economic and industry forecasting, in a press release. “However, purchase activity was still 10% lower than a year ago, as inventory shortages and higher mortgage rates are dampening demand.”

A noticeable pullback in demand has been reported recently among various researchers, as the first signs of price cuts emerge, particularly in Western U.S. markets, following more than a year of record growth. Price reductions have been evident in diminishing purchase-loan sizes, which have shrunk after consistently setting record highs early this year. 

“The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and is potentially a sign that home price-growth is moderating,” Kan said.  

Last week’s average purchase-loan size, though, saw a small uptick of 0.7%, rising to $422,100 from $419,000. The mean refinance amount on new applications also increased 2.3% to $290,000 from $283,400 seven days earlier. The mean size of all new mortgage applications increased 1.8% to $382,800 from $376,000 week over week.     

The share of adjustable-rate mortgage applications relative to all activity surged last week, making up 10.6% of volume, up from 8.1%. Refinances accounted for only 29.7% of total applications, down from 31.7% a week earlier. Last year, throughout most of the spring and summer, refinances consistently accounted for at least 60% of weekly activity. 

The depths to which refinances have fallen over the past 12 months are now also trackable not only by volume, but on a dollar basis as well, thanks to researchers at Fannie Mae. The government-sponsored enterprise’s new weekly Refinance Application Level Index, calculated through data sourced from its automated underwriting system, found a week-over-week decrease of 6.3% in the total refinance dollar volume, while on an annual basis, the reduction was 70.8%. 

“Refinance application dollar volume continued its downward trend last week, ending at the lowest point this year for a non-holiday-shortened week,” said Fannie Mae Chief Economist Doug Duncan in a press release. 

In comparison to periods further back, current refinance amounts are almost 80% below levels from the COVID boom in the third quarter of 2020, but 41% above the refi slowdown in late 2018. 

“Thus far in 2022, refi dollar volume has fallen significantly as we’ve moved into a consistently higher mortgage rate environment and is now lower than the average level during the 2010 to 2018 period,” Duncan added. 

Government-backed loan activity increased by 1% seasonally adjusted last week, according to MBA — down for refinances, but up in purchases. The share of federal loans relative to total volume came in lower, though. Federal Housing Administration-backed applications increased to 12% of new loans, up from 11.8% one week prior, but the share of loans sponsored by the Department of Veterans Affairs fell to 10.7% from 11.7% seven days earlier. Mortgages coming through U.S. Department of Agriculture programs made up 0.5% of the application pool, down from 0.6% week over week.

Mortgage rates reported by MBA members accelerated last week, with the 30-year conforming rate coming in at its highest since November 2008, according to Kan. Rates are almost double from where they were a year ago, he noted.

“All other loan types also increased by at least 20 basis points, influenced by the Federal Reserve’s 75-basis-point rate hike and commentary that more are coming to slow inflation,” Kan said.  

The contract interest rate for 30-year fixed conforming loans with balances of $647,200 or below averaged 5.98%, a 33-basis point jump from 5.65% the previous week. The one-week surge was the largest since 2009, Kan said. 

The average 30-year jumbo-loan contract fixed rate for balances above the conforming amount increased 24 basis points to 5.49% from 5.25% one earlier.

The 30-year fixed mortgage backed by the FHA came in with an average contract rate of 5.62% compared to 5.36% seven days earlier.

The average contract rate of the 15-year fixed mortgage also headed upward by 26 basis points, finishing at 5.05% compared to 4.79% one week prior. 

The average contract interest rate for 5/1 adjustable-rate mortgages surged to 4.78%, a 21-basis point increase from 4.57% a week earlier.