Mortgage volumes fall for a third straight week

Mortgage volumes plunged even further last week after hitting a 22-year low earlier in the month, according to the Mortgage Bankers Association.

The MBA’s Market Composite Index, a measure of weekly loan applications based on surveys of association members, fell a seasonally adjusted 3.7% for the seven-day period ending Aug. 26. Compared to the same week a year ago, volumes were 64% lower. 

Originators reported decreases in both purchase and refinance applications. In particular, the Refinance Index fell 8% from the previous week and 83% year over year, as lenders grapple with what many in the banking industry are calling a “new normal” rate environment. Higher interest rates have wiped out much of the incentive for refinances, and their share of applications relative to overall volume dropped to 30.3% from 31.1% one week earlier.

The seasonally adjusted Purchase Index also decreased 2% from the week prior. “Purchase applications have declined in eight of the last nine weeks, as demand continues to shrink due to higher rates and a weaker economic outlook,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release.  

Purchases also came in 23% below its level from the same seven-day period last year. But the MBA noted some opportunities for a turnaround as supply-and-demand adjusts to the new housing market realities. 

“Rising inventories and slower home-price growth could potentially bring some buyers back into the market later this year,” Kan said.

While evidence of moderating price growth has been noted throughout the housing industry, average loan sizes, including for purchases, went up after two consecutive weekly declines. The average amount on new purchase applications rose 0.7% to $409,100 from $406,400, while mean refinance sizes increased by 2.8% to $276,600 from $269,000. The overall average across all applications last week grew to $368,900 from $363,700, a gain of 1.4%.

The seasonally adjusted Government Index fell 3.8% week over week, but the share of federally backed loans relative to overall activity remained flat. Loans insured by the Federal Housing Administration increased to 13% of volume, though, up from 12.5% the previous week. FHA gains were offset by a decline in applications backed by the Department of Veterans Affairs, whose share dropped to 11.1% from 11.6% seven days earlier. Loans sponsored by the U.S. Department of Agriculture ticked downward to an 0.6% share from 0.7% the previous week.

A recent reduction in competition may be opening up opportunities for buyers of entry-level homes and contributing to the latest uptick in FHA applications, MBA Chief Economist Mike Fratantoni said at a conference earlier this week. The FHA share has increased 1% over the previous two weeks. However, government-backed activity overall is now 59% lower on an annual basis. 

Meanwhile, adjustable-rate applications also increased their share of overall activity, rising to 8.5% after coming in just a week earlier at 6.5%, as fixed interest rates surged again. Adjustable-rate loan share fluctuated between 6% to 10% over the past few months, well above the sub 4% level throughout most of 2021 when rates were below historical averages.

“Mortgage rates and Treasury yields rose last week as Federal Reserve officials indicated that short-term rates would stay higher for longer,” Kan said. “Mortgage rates have been volatile over the past month, bouncing between 5.4% and 5.8%.” 

The average contract fixed rate for the 30-year mortgage with balances below the conforming amount of $647,200 jumped 15 basis points to 5.8% from 5.65% one week earlier among MBA members. Points increased to 0.71 from 0.68 for 80% loan-to-value ratio (LTV) loans.

The contract average rate of 30-year jumbo loans above the conforming limit also increased, but at a slower pace, rising to 5.32% from 5.28% week over week, with points decreasing to 0.48 from 0.58.

The 30-year fixed-contract rate for FHA-backed mortgages averaged 15 basis points higher, rising to 5.57% from 5.43% the previous week. Points decreased to 1.09 from 1.1.

The contract 15-year FRM average also increased to 5.1% from 5.01%, with points dropping to 0.82 from 0.84 seven days earlier.

Adjustable-rate mortgages bucked the trend, though, with the 5/1 ARM average edging down 3 basis points to 4.78% from 4.81% the prior week. Points decreased to 0.61 from 0.74.