Rate volatility hit refis, but homebuyers stay active
Mortgage application activity slowed last week as interest rates climbed for a third consecutive week. However, demand for home purchases showed continued resilience despite the volatility.
Mortgage applications for the week ending May 23 fell 1.2% on a seasonally adjusted basis, according to the Mortgage Bankers Association (MBA). Unadjusted, the index declined 2% from the previous week.
Higher mortgage rates were the key driver behind the decline in total applications. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($806,500 or less) rose to 6.98%, up from 6.92% the week prior.
“Mortgage rates reached [their] highest level since January, following higher Treasury yields. Additional market volatility has added to the increase, keeping the mortgage-Treasury spread wider than it was earlier this year,” said Joel Kan, MBA’s vice president and deputy chief economist. “The 30-year fixed rate increased to 6.98%, its third consecutive weekly increase.”
Refinance applications were hit hardest by the rate rise, dropping 7% week-over-week. While refinance activity is still 37% higher than the same week one year ago, the momentum slowed under rate pressure. Within the refinance segment, conventional refis fell 6%, and VA refis plunged 16%.
“As a result of these higher rates, applications activity decreased, driven by a 7% decline in refinance applications,” Kan said.
Despite rate headwinds, the seasonally adjusted Purchase Index increased 3%, and the unadjusted index rose 2% week-over-week. Year-over-year, purchase activity is now 18% higher.
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“Purchase applications were up over the week and continue to run ahead of last year's pace as increased housing inventory in many markets has been supporting some transaction volume, despite the economic uncertainty,” Kan added.
As refinancing recedes, its share of total mortgage activity dropped to 34.6%, down from 36.6% the previous week. Adjustable-rate mortgages (ARMs), on the other hand, made up 7.5% of applications, a modest increase.
FHA share remained steady at 17.9%, while VA share slipped slightly to 12.3% (from 12.6%) and USDA share was unchanged at 0.5%.
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