Purchase mortgage activity expected to increase despite market cooldown –why?

MBA reveals latest mortgage applications survey results and originations forecast

Purchase mortgage activity expected to increase despite market cooldown –why?

US mortgage activity is expected to decelerate this year as higher mortgage rates and possible further rate hikes from the Federal Reserve curb demand.

Overall mortgage applications dropped 1.3% week over week on a seasonally adjusted basis, according to data from the Mortgage Bankers Association’s latest survey. Unadjusted, mortgage apps were down by 1% from the previous week.

“Mortgage rates across all loan types continued to move higher, with the 30-year fixed-rate exceeding the 5% mark to 5.13%– the highest since November 2018. Refinance activity, as a result, declined to the slowest weekly pace since 2019,” said Joel Kan, AVP of economic and industry forecasting at MBA.

Refinance applications continued their downward trend, posting a 5% week-over-week decline. Compared to a year ago, refi activity was down by 62%. Purchase applications were up by 1% on a seasonally adjusted basis and 2% on an unadjusted basis.

MBA chief economist Mike Fratantoni added that the jump in mortgage rates will slow the housing market and further reduce refinance demand for the rest of this year. As a result, MBA’s April 2022 forecast now calls for mortgage originations to total $2.58 trillion this year – a 35.5% decline from $4 trillion a year ago.

Read more: Housing market cooling down

“Mortgage rates have spiked more than 1.5 percentage points thus far in 2022. This rapid increase in rates, caused by a much more rapid pace of rate hikes and balance sheet reduction from the Federal Reserve, is in response to the booming job market and inflation being at a 40-year high,” Fratantoni said. “Higher home prices and rates, as well as ongoing supply constraints, are now expected to lead to an annual decline in existing home sales.”

However, the MBA still anticipates purchase originations reaching a record $1.72 trillion in 2022, up 4% from 2021. Meanwhile, refi originations are forecast to fall 64% to $841 billion.

“Even though existing sales volume will be slightly lower than last year, the continued growth in new home sales and the rapid rise in home prices should deliver a smaller, but solid, 4% annual growth in purchase origination volume,” Fratantoni said.

According to Kan, higher rates are also increasing borrower interest in adjustable-rate mortgages. “Their share of applications last week was at 7.4%, which was the highest share since June 2019. In a promising sign of strong purchase demand amidst affordability challenges, both conventional and government purchase applications increased,” he said.