Uptick driven by slight gain in conventional applications
Overall mortgage loan application volume hit a four-month high for the week ending October 8 despite a drop in refinances.
Mortgage applications inched up 0.2% on a seasonally adjusted basis from the previous week, according to the Mortgage Bankers Association's Market Composite Index. However, the refinance index posted a 1% decrease and was 16% lower than the same week a year ago. The seasonally adjusted purchase index, on the other hand, rose 2% week over week.
"Mortgage rates reached their highest level since June 2021, but application activity changed little this week. An increase in home purchase applications offset a slight decline in refinances," said Joel Kan, MBA's associate vice president of economic and industry forecasting. "The increase in purchase applications was welcome news but was primarily driven by a 2% gain in conventional purchase applications, which kept the average loan size elevated."
The refinance share of mortgage activity decreased six basis points week over week to 63.9% of total applications. The adjustable-rate mortgage (ARM) share of activity remained the same at 3.4% of total applications. FHA loans made up 10.2%, VA loans accounted for 10.2%, and USDA loans represented 0.4% of total applications.
"The 30-year fixed-rate reached 3.18% last week and has risen 15 basis points over the past month, resulting in an 11% drop in refinance applications during this time," Kan said. "Government refinance applications fell over 3% last week, driven by a decline in FHA refinances and an eight-basis-point increase in the average FHA mortgage rate."
Kan added that they expect refinance activity to continue to weaken as rates move higher and borrowers see less of a rate incentive.