Mortgage application activity comes in flat

New loan activity flattened last week, with overall volumes posting a slight drop, as a small uptick in refinances was tempered by slowdowns in purchases, according to the Mortgage Bankers Association.. 

The MBA’s Market Composite Index, a measure of mortgage applications based on surveys of association members, edged down a seasonally adjusted 0.5% for the weekly period ending Oct. 28. Compared to the same period last year, mortgage volumes were 68% lower. 

“Mortgage applications declined for the sixth consecutive week despite a slight drop in rates,” said Joel Kan, MBA’s vice president and deputy chief economist, in a press release.  

“Elevated rates continue to put pressure on both purchase and refinance activity and have added to the ongoing affordability challenges impacting the broader housing market,” he said.

The Refinance Index increased, inching higher by 0.2% from the prior week, but was still 85% below its reading of one year ago. The refinance share relative to overall volume also increased to 28.6% from 28.2%, lingering under 30% for five weeks in a row. Just 10 months ago as the new year commenced, the refinance share was more than two times greater than current levels. 

The uptick in refinances was offset by a 1% drop in the seasonally adjusted Purchase Index, though, which slid further after hitting a seven-year low one week earlier. On a year over year basis, purchases stood 41% below last year’s levels. 

Despite shrinking demand, home prices have not yet dropped to a level that would drive an influx of buyers back into the purchase market. The lack of affordability helped contribute to falling sales of both new constructions and existing homes in September, according to government sources and housing industry trade groups. 

Although costs remain elevated, MBA has reported downward price trends recently, with the average purchase size on applications dipping below the $400,000 mark last week. The mean purchase amount fell to $395,900 from $402,400 seven days earlier, a decline of 1.6%. Average refinance sizes also tumbled 0.8% to $262,800 from $265,000. The average loan size overall of new applications came in 1.4% lower, falling to $357,900 from $362,900 week over week.

Government-sponsored applications grabbed a smaller share of activity week over week with Federal Housing Administration-backed loans accounting for 13.5% compared to 13.9% seven days earlier. The share of Department of Veterans Affairs-guaranteed mortgages also dropped to 10.3%, down from 10.7%, while the sliver of loan applications coming from U.S. Department of Agriculture programs remained unchanged at 5% of total volume. 

The adjustable-rate mortgage share also headed downward, falling to 11.8% from 12.7% the prior week. Just two weeks earlier, the ARM share had expanded to its largest since 2008, as many consumers seek financing that would result in lower initial payments.

The majority of interest-rate types among MBA lenders retreated downward one week after the 30-year average jumped above 7%. But current rates are still well above where they were 12 months ago, following months of volatility marked by several sharp upward spikes.

“Apart from the ARM-loan rate, rates for all other loan types were more than three percentage points higher than they were a year ago,” Kan said. 

The contract average for 30-year fixed-rate mortgages with conforming balances of $647,200 or less fell 10 basis points last week to 7.06% from 7.16%. Points for 80% loan-to-value ratio loans decreased to 0.73 from 0.88.

The average interest rate for contract 30-year jumbo loans exceeding the conforming amount climbed higher, though, by 2 basis points, rising to 6.55% from 6.53% one week earlier. Points increased to 0.7 from 0.68.

The 30-year average for FHA-backed fixed rate mortgages dropped to 6.7% a week after it came in at 6.79%. Points decreased to 1.18 from 1.59.

The 15-year contract fixed-rate average inched down 2 basis points to 6.37% from 6.39% seven days earlier, with points dropping to 1.05 from 1.52.

The contract rate average for 5/1 ARMs also decreased week over week, dropping to 5.79% from 5.86%. Points increased to 0.9 from 0.88.