Mortgage application volume declines for eighth time in 9 weeks

Purchases and refinances remained sluggish, leading loan-application volumes to drop for the eighth time in the last nine weeks, according to the Mortgage Bankers Association.

After a sizable decline due to the impact of Hurricane Ian two weeks ago, the MBA’s Market Composite Index, a measure of loan applications based on surveys of association members, decreased another seasonally adjusted 2% for the seven-day period ending Oct. 7. Compared to the same week a year ago, volumes came in 69% lower.

“Application volumes for both refinancing and home purchases declined and continue to fall further behind last year’s record levels,” said Mike Fratantoni, MBA’s senior vice president and chief economist, in a press release. 

The Refinance Index dropped 2% from the prior week and currently sits 86% below its level of a year ago, as rising rates remove incentive for most borrowers. The refinance share relative to overall volume was unchanged from seven days earlier at 29%.

The seasonally adjusted Purchase Index similarly declined by 2% week over week and is currently off 39% from last year’s mark. While softening prices can often lead purchase volumes to rise, higher interest rates and inflation have also deterred potential buyers, providing little momentum to move the index upward. Average purchase-loan sizes fell below $400,000 for the first time in several months, dropping by 1.7% to $399,100 from $406,200 a week earlier. 

The current situation may stick for a while longer, Fratantoni said. “The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand. However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes.” 

The mean amount on refinance applications, meanwhile, increased by 0.9% to $265,600 from $263,300. The average for all activity slipped to $360,400 from $364,800 week over week, a 1.2% decline.

The recent announcement of a 75-basis-point increase in the federal funds rate has helped drive the conforming 30-year rate among MBA lenders to its highest since 2006. Rate surges this year have led a higher percentage of borrowers to turn to adjustable-rate mortgages, which accounted for 11.7% of all applications, down by a fraction from the previous week’s 11.8%.

Like the composite index, seasonally adjusted government-loan activity inched downward, but by a slightly more muted 0.8%. The share of federally backed mortgages among last week’s volume increased, though, with Federal Housing Administration-guaranteed loans making up 13.5% of all applications, up from 13.2% seven days earlier. Applications coming through the Department of Veterans Affairs saw their share rise to 10.9% from 10.7%, but U.S. Department of Agriculture-backed loans made up 0.5% of new loans, down from 0.6% one week prior.

Interest rates surged across all product types tracked by the MBA, with the contract average for the 30-year fixed mortgage with balances below the conforming amount of $647,200 rising by 6 basis points to 6.81% from 6.75% a week earlier. Points increased to 0.97 from 0.95 for 80% loan-to-value ratio loans.

The contract average for 30-year jumbo loans exceeding the conforming amount climbed 11 basis points to 6.25% from 6.14% week over week, with points decreasing to 0.61 from 0.79.

The 30-year FHA-backed fixed mortgage rate edged up to an average of 6.61% from 6.6% seven days earlier, while points increased to 1.71 from 1.51.

The 15-year contract fixed-rate crossed the 6% mark, surging 16 basis points to average 6.12% from 5.96% one week prior. Points increased to 1.30 from 1.08.

The adjustable-rate mortgage saw the largest increase last week, with the average of the 5/1 ARM accelerating 20 basis points to 5.56% from 5.36%. Points decreased to 0.9 from 1.02 for 80% LTV loans.