Mortgage applications hit a 25-year low

New loan activity slowed further last week, leading application volumes down to a 25-year low, according to the Mortgage Bankers Association. 

The MBA’s Market Composite Index, a measure of weekly mortgage applications based on surveys of association members, decreased 4.5% on a seasonally adjusted basis for the seven-day period ending Oct. 14. Application activity fell for the ninth time in 10 weeks and was 68% below its level during the same week a year ago. 

“Mortgage applications are now into their fourth month of declines, dropping to the lowest level since 1997,” said Joel Kan, MBA’s vice president and deputy chief economist, noting the impact of interest rates.

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” he said. The current 30-year fixed rate average reported by MBA members is well over three percentage points higher compared to the same time frame in 2021. 

The Refinance Index fell 7% week over week, with activity plummeting by 86% from one year ago amid 2022’s high interest-rate environment. The share of refinances relative to overall activity also slipped to 28.3% from 29% the previous week. By comparison, refinances accounted for over 60% of volume at the start of the year.

The seasonally adjusted Purchase Index also dropped 4% from the prior week and came in 38% below its level from seven days last year, as the housing slowdown makes an impact across sectors. 

“Residential housing activity ranging from new housing starts to home sales have been on downward trends coinciding with the rise in rates,” Kan said. 

Sluggish sales activity has also brought about monthly price drops across the country, according to housing research groups. The ongoing rise in interest rates and the resultant affordability challenges led Fannie Mae last week to predict prices would fall on an annual basis in 2023.   

The average purchase size last week did see an uptick, though, after falling below $400,000 for the first time in several months. The mean purchase amount reported on new applications increased 0.9% to $402,600 from $399,100 one week prior. Average refinance amounts headed higher as well to $275,200 from $265,600, a 3.6% rise. The overall average for all applications last week climbed 1.7% to $366,600 from $360,400,   

Adjustable-rate mortgages continue to see heightened interest with rates at their current levels, Kan said. After making up 11.7% of all applications a week ago, the ARM share rose to 12.8% of all applications, which was the highest since March 2008. 

The percentage of federally backed mortgages saw only a slight change week over week, as the seasonally adjusted Government Index declined 5% — a similar pace as overall activity. Federal Housing Administration-backed applications inched up to a 13.6% share from 13.5%, while loans guaranteed by the Department of Veterans Affairs fell back to 10.7% of volume from 10.9%. The share of applications coming from the U.S Department of Agriculture remained at 0.5%.  

Interest rates keep climbing among MBA lenders, with the association reporting that the average for the 30-year conforming fixed-contract mortgage with balances of $647,200 or less reached 6.94% — the highest point since 2002. A week earlier, the rate came in at 6.81%. Points for 80% loan-to-value ratio decreased to 0.95 from 0.97.

The average rate for 30-year fixed-contract jumbo loans also climbed 6 basis points to 6.31% from 6.25% seven days earlier, with points increasing to 0.67 from 0.61.

The 30-year contract-rate average for FHA-backed mortgages headed up by 2 basis points to 6.63% from 6.61%, while points decreased to 1.6 from 1.71.

The average contract interest rate for the 15-year fixed mortgage bucked the upward trend with a 3-basis-point drop to 6.09% from 6.12% a week earlier. Points decreased to 1.18 from 1.30.