Mortgage volumes decrease to erase prior week’s gain

Home loan applications fell as interest rates increased last week, reversing an upswing in borrowing activity earlier in the month, according to the Mortgage Bankers Association.

The MBA’s Market Composite Index, a measure of weekly application volume based on surveys of association members, dipped 7.7% on a seasonally adjusted basis for the seven-day period ending Feb. 10. A week earlier, the index had increased 7.4%. On a year-over-year basis, the weekly index stood 57% lower.

Signs that inflation could linger and cause the Federal Reserve to leave restrictive monetary policies in place sent interest rates upward, said Joel Kan, MBA vice president and deputy chief economist.

“Mortgage applications decreased for the second time in three weeks because of these higher rates,” with the pace of both purchase and refinance lending slowing, Kan said.

The seasonally adjusted Purchase Index decreased 5.5% from the prior week, with volumes at their lowest since the beginning of the year. Compared to the same week last year, purchases were 36% lower on a seasonally adjusted basis.

“Potential buyers remain quite sensitive to the current level of mortgage rates, which are more than two percentage points above last year’s levels and have significantly reduced buyers’ purchasing power,” Kan said.

The Refinance Index tumbled 12.5% from the previous week, landing 76% below its level over the same seven days in 2022, as homeowners found few reasons to cash out or revise terms.

Refinances relative to total share of activity came in lower as well, slipping to 32% of volume versus 33.9% a week earlier.  

A few signals emerged in the first weeks of 2023 that show some buyer interest returning to the housing market. Researchers at online real estate brokerage Redfin said homes were selling at their fastest pace since July, with 42% of properties under contract getting an accepted offer within two weeks between mid January and early February. Inventory also crept back up with new listings posting their smallest margin of decline in four months.

But whether these recent trends are temporary aberrations or the start of a turnaround remains a question mark, said Chen Zhao, Redfin economics research lead. 

“This year is more uncertain than most because the effects of last year’s rapid rate hikes are still flowing through the economy, and we’re not sure how much more the Fed will raise rates this year,” she said.

So far, much of the new purchase activity appears centered in the higher-priced end of the market based on MBA survey data. Average purchase-loan sizes now sit more than 11% higher than where they were in early January, increasing each week this year. The mean amount climbed another 1.1% last week to $433,300 from $428,500. The average stood at $389,000 as recently as Jan. 6.

While purchase loan sizes climbed higher, the average refinance amount last week headed in the other direction, falling 2% to $274,300 from $280,100 seven days earlier. The overall average seen on all new applications came out to $382,500, a 1.1% weekly uptick from $378,200.

The share of federally backed applications came in mostly flat compared to one week earlier, with the seasonally adjusted Government Index dropping by a similar margin as the composite reading. But shifts were noted in the type of loans applied for, with Federal Housing Administration-backed applications garnering 12.6% of volume compared to 11.9% one week prior. The share of loans guaranteed by the Department of Veterans Affairs also was 12.6%, down from 13.4%. The slice of volume coming from the U.S. Department of Agriculture remained the same on a weekly basis at 0.6%.

With uncertainty currently surrounding fixed rates, which fell across the board among MBA lenders last week, adjustable-rate loans garnered a larger share of volume, growing to 6.9% from 6.6%.

The 30-year contract rate for mortgages with balances below the conforming amount of $726,200 increased for the first time in five weeks, with the average jumping 21 basis points to 6.39% from 6.18% seven days earlier. Points also went up to 0.7 from 0.64 for 80% loan-to-value ratio loans.

The average fixed-contract rate for 30-year jumbo mortgages above $726,200 took an even larger leap of 30 basis points to 6.26% from 5.96%, getting closer to closing a somewhat anomalous gap with conforming loans. Points decreased to 0.43 from 0.55.

The interest rate for 30-year FHA-backed loans increased to 6.25% from 6.14%, while points increased to 1.14 from 0.88.

The average contract interest rate of the 15-year fixed mortgage took a 21-basis-point jump, rising to 5.85% from 5.64%. Points increased to 0.81 from 0.63 for 80% LTV-ratio loans.

Hybrids saw the only downward movement over the week, with the 5/1 adjustable-rate mortgage’s average edging down 3 basis points to 5.53% from 5.56%. Points decreased to 0.72 from 0.8. These loans bear a fixed rate for five years and adjust thereafter.

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