Mortgage applications continue falling

by Clayton Jarvis21 May 2020

In its most recent weekly survey results, Mortgage Bankers Association found that both mortgage and refinance applications continued their downward trends during the week ending May 15. Purchase applications, however, are another story.

At 2.3 percent, the overall weekly decline in applications is neither alarming nor particularly enlightening, based as it is on several other more telling figures.

The overall drop was driven by a 6.3 percent decline in refinance application activity, which fell 3 percent a week before and is now 17.4 percent lower than where it stood four weeks ago. Conventional refi applications dipped by 5.6 percent during last week’s survey period, with government refinance applications falling by 8.3 percent.

Odeta Kushi, deputy chief economist for First American Financial Corporation, feels that the decrease in refi applications, reflective as it is of the temporary measures lenders have been forced to undertake by COVID-19, is a trend that should reverse itself before too long.

“The major reason [for the decrease] is all of the observed changes in credit availability for refinance loans, which have worked to impact rates,” Kushi says. “For some folks, rates are higher to refinance, and it’s harder to refinance because lenders have stopped offering certain new products because of the risk in the market.”

Kushi expects refinance applications to be strong for the rest of the year. She says the consensus opinion sees rates heading below 3.3 percent.

 “That bodes well for the refinance market,” she says. Once lenders get a handle on their capacity constraints, the nation’s employment situation improves, and credit standards start loosening, Kushi feels the added clarity and confidence in the market will help refinance applications “tick up once more.”

Fixed- and adjustable-rate mortgage applications continue travelling in opposite directions, potentially a sign that the current economic tumult has made homebuyers extra sensitive to the difference in rates between the two loan types. (The average rate for a 30-year fixed mortgage was 3.52 percent last week, versus 3.31 percent for a 5/1 ARM, Kuchi explains.) Fixed-rate applications decreased by 2.6 percent week-over-week, but adjustable-rate activity increased by 8.8 percent, despite a 28.1 percent drop in the number of adjustable-rate government loan applications.

The same thriftiness that may driving the demand for ARMs may also be fuelling a significant rise in FHA, VA and USDA loan applications. FHA and VA purchases increased by 5.8 and 9.1 percent, respectively, week-over-week, but USDA purchase applications rose by an eye-opening 16 percent. The last four weeks have seen USDA applications balloon by 60.6 percent.

Joel Kan, MBA’s associate vice president of economic and industry forecasting, was pleased by the FHA, VA and USDA figures, which are now five percent higher than a year ago. “As states gradually re-open and both home buyer and seller activity increases,” he wrote in a statement accompanying the survey results, “we will be closely watching to see if these positive trends continue, or if they reflect shorter-term, pent-up demand.”

The good news continues: Purchase applications remain on the rise. After increasing 11 percent in the previous survey period, they rose a further 5.9 percent last week.

“This is definitely a positive indicator,” says Kushi, who credits record low mortgage rates and strong pre-COVID-19 demand for attracting buyers back to the market. “The pent-up demand for housing is showing up in what is usually the last few weeks of peak spring home-buying season, indicating that we will likely be in for an extended summer homebuying season.”