What's happening to US mortgage applications?

Amid talk of increased interest rates to mitigate inflation, a newly released study shows mortgage applications fell by more than 7% from the prior week. 

Compiled by the Mortgage Bankers Association (MBA), the statistical data covers the week ending Nov. 26, albeit with an adjustment made for the Thanksgiving holiday. On an unadjusted basis, the Index decreased 37% compared with the previous week, the data shows. Moreover, the study’s Refinance Index decreased 15% from the previous weekend, 41% lower than the same week one year ago. 

“Mortgage rates rose for the third week in a row, reducing the refinance incentive for many borrowers,” Joel Kan, the MBA’s associate vice president of Economic and Industry Forecasting, said in a prepared statement. “The 30-year fixed rate hit 3.31% – the highest since this April – and led to refinance applications falling more than 14%,” the economist added. 

 Over the past three weeks, the study found, rates are up 15 basis points, and refinance activity has declined over 18%. Despite higher mortgage rates, the study shows purchase applications had a strong week, mostly driven by a 6% increase in conventional loan applications. Conventional loans tend to be larger than government loans, and this was evident in the average loan amount, which increased to $414,700 – the highest since February, Kan said. 

 As home-price appreciation continues at a double-digit pace, buyers of newer, pricier homes continue to dominate purchase activity, while the share of first-time buyer activity remains depressed:  “The refinance share of mortgage activity decreased to 59.4% of total applications from 63.1% the previous week,” Kan said.

 Among the study’s other findings: 

 The adjustable-rate mortgage (ARM) share of activity increased to 3.6% of total applications.

• The FHA share of total applications increased to 8.9% from 8.6% the week prior. The VA share of total applications decreased to 10.0% from 10.3% the week prior. 
• The USDA share of total applications increased to 0.5% from 0.4% the week prior.
• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($548,250 or less) increased to 3.31percent from 3.24%, with points increasing to 0.43 from 0.36 (including the origination fee) for 80% loan-to-value ratio (LTV) loans.
• The effective rate increased from last week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $548,250) decreased to 3.27% from 3.28%,with points increasing to 0.35 from 0.26.

The findings erase the modest gain for mortgage loan applications of 1.8% that was posted on Nov. 19. “The financial markets continue to discern the Federal Reserve’s policy path in the coming months in light of the current high growth, high inflation environment,” Kan said at the time. “Despite a fair amount of rate volatility last week, mortgage rates were higher, with the 30-year fixed rate increasing four basis points to 3.24%.” 

The surveys cover over 75% of all US retail residential mortgage applications and have been conducted since 1990. 

An increase in mortgage rates by year’s end is something of a foregone conclusion as the Federal Reserve takes steps to mitigate inflation, Bankrate reports. But the specter of the coronavirus could play the role of wild card in the metrics mix, the site reported. 

The World Health Organization on Sunday warned the omicron variant of the virus could pose a “very high” global risk. It’s unclear what effect this might have on mortgage rates, Bankrate noted in its report, but the scourge could corrode consumer spending, disrupt travel plans and spook investors.