Mortgage activity tumbles to lowest level since 2018

Mortgage activity dropped for the seventh week in a row, with both purchases and refinances declining, while adjustable-rate loans further increased their share in response to the recent interest-rate surge.

The Mortgage Bankers Association Market Composite Index, a measure of weekly loan applications based on surveys of MBA members, fell 8.3% on a seasonally adjusted basis for the seven-day period ending April 22. Last week’s volume came in 51% below activity from the same week in 2021. Overall activity decreased to its lowest point since 2018, according to Joel Kan, the MBA’s associate vice president of economic and industry forecasting.

The Refinance Index continued its 2022 drop-off, falling another 9% from the previous week leaving it significantly off levels from 12 months ago, as the steep rise of interest rates showed its impact. 

“Refinance applications were 70% below the same week a year ago, when the 30-year fixed rate was in the 3% range,” Kan said in a press release.

The seasonally adjusted Purchase Index also fell 8% from the prior week, and compared to the same time period in 2021, was 17% lower. After an initial uptick at the beginning of spring buying season, purchase volumes have fallen for two consecutive weeks, possibly portending additional turbulence ahead. “The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months,” Kan said.

The decrease in loan activity has already contributed to thousands of industry layoffs in the first four months of this year. In the past week alone, Rocket Cos., Wells Fargo and Flagstar all announced staff reductions in their mortgage-related businesses, with their notifications coming after several other companies shed staff earlier this year.

“The drop in purchase applications was evident across all loan types,” Kan noted. “Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices.”

The mortgage-rate spike, which has reached levels not seen since 2009, according to the MBA, has led to a sustained interest in adjustable-rate-mortgage activity in 2022 as well, as borrowers look for ways to lower costs.

“The ARM share of applications last week was over 9% by loan count and 17% based on dollar volume,” Kan said. Currently at 9.3%, the share is up from 8.5% a week earlier and is double what it was three months ago,

The refinance share, though, fell further, and accounted for 35% of all loan activity, down from 35.7% a week earlier. As recently as late February, refinances still made up over half of all mortgage activity. 

The average size of loan applications took a step back, with the mean for overall activity dropping 0.7% week over week to $393,300 from $396,000. Average purchase size fell to its lowest level since early February, coming in at $449,100 from $453,800, a decrease of 1%. Refinance applications averaged $289,700, down 0.6% from $291,500 a week earlier.

While government-backed loan activity also dipped last week, it took a larger share relative to overall application volume. Federal Housing Administration-insured mortgages accounted for 10.6% of new loans, up from 9.9% a week earlier. Loans backed by the Department of Veterans Affairs took a 10.2% share relative to overall volume, up from 10.1% week over week. Applications processed through the U.S. Department of Agriculture represented 0.5% of applications, unchanged from seven days earlier. 

With surging interest rates driving down borrower activity, further increases reported by MBA members over the past week will likely bring no relief to lenders. Contract rates increased across all categories reported by the association. 

The average contract interest rate for 30-year fixed mortgages with conforming balances below $647,200 moved up another 17 basis points, coming in at 5.37% compared to 5.2% a week earlier.

The contract rate for 30-year fixed jumbo loans with nonconforming balances greater than $647,200 climbed to 4.89% from 4.76% the week prior.

The contract interest rate of the 30-year FHA-backed mortgage averaged 5.29%, rising from 5.11% on a week-over-week basis.

The average contract interest rate of the 15-year fixed mortgage increased by 22 basis points to 4.68%. Seven days earlier the average came in at 4.44%.

The 5/1 adjustable-rate mortgage also averaged higher, jumping to 4.28%, up from 4.09% the previous week.