Purchase, refinance applications both increased last week

Mortgage applications increased for the second week in a row after an almost two-month slide, as a drop in interest rates helped drive up both purchases and refinances, the Mortgage Bankers Association said.

The MBA’s Market Composite Index, a measure of application activity based on surveys of association members, climbed 2.2% on a seasonally adjusted basis for the weekly period ending Nov. 18. But application volumes were still 68.8% lower than their level of one year ago when the 30-year conforming rate was less than half of where it is today. 

The seasonally adjusted Purchase Index swung up 3% week-over-week, but it still stands 41% below activity from 12 months ago. However, if rates continue trending downward, potential home buyers will likely be drawn back to the table, according to Joel Kan, MBA’s vice president and deputy chief economist.

“The decrease in mortgage rates should improve the purchasing power of prospective home buyers, who have been largely sidelined as mortgage rates have more than doubled in the past year,” he said in a press release.

“However, refinance activity is still more than 80% below last year’s pace,” Kan said. 

Although the Refinance Index rose 2% from the prior week, it was 86% lower year over year. Last week, the share of refinance applications relative to overall volume equaled 28.4%, growing from 27.6% seven days earlier. The yearlong drop in refinance numbers echoed similar findings released earlier this month from Black Knight’s Optimal Blue, which determined they accounted for just 14% of rate locks in October. 

While spurring interest among borrowers overall, the recent rate slide has taken some of the air out of enthusiasm for adjustable-rate mortgages, which fell to an 8.8% share of activity compared to 10.6% one week prior, according to the MBA. ARMs had previously made up 10% to 12% of volume over the past two months as rates surged, Kan said.

Federally backed loan activity also edged upward alongside the composite index, but the share of government mortgages decreased slightly from the previous week due to elevated overall volumes. Federal Housing Administration-backed loans accounted for 13.4%, inching down from 13.5% seven days earlier. The share of mortgages guaranteed by the Department of Veterans Affairs also dropped by the same margin to 10.5% from 10.6%, while applications coming from U.S. Department of Agriculture programs accounted for 0.6%, the same percentage as the previous week.

The declining rates may also be leading borrowers to consider larger loan amounts after economic trends over the past few months limited what many could afford. Average application amounts reversed course after falling back last week. 

The average purchase-loan size was up 2.7% to $400,100 from $389,400, while the mean refinance amount came out to $270,700, a 0.1% uptick from $267,600. The overall average climbed 2.1% to $363,300 from $355,700 one week earlier.

Meanwhile, interest rates kept heading downward in most categories reported by MBA members, with fixed mortgages all seeing double-digit decreases.

The 30-year contract fixed-rate mortgage for loans with conforming balances of $647,200 or less dropped significantly for a second straight weekly period to 6.67% from 6.9%. Points increased to 0.68 from 0.56 for 80% loan-to-value ratio loans. The conforming rate is now down almost 50 basis points from its recent peak of 7.16% a month ago, Kan said.

The average interest rate for 30-year contract jumbo mortgages with balances above the conforming amount similarly tumbled 21 basis  points to 6.3% from 6.51% week over week. Points also increased to 0.74 from 0.64.

The FHA-backed 30-year contract fixed rate mortgage averaged 6.66%, 27 basis points lower from 6.93%, seven days prior. Points edged up to 1.01 from 0.99.

The contract 15-year fixed-rate average dropped 19 basis points to 6.08% from 6.27% week over week, with points decreasing to 0.7 from 0.73.

Bucking the trend was the 5/1 adjustable rate mortgage, which came out to an average of 5.78%, a 5 basis point increase from 5.73% a week earlier. Points increased to 0.73 from 0.65.