Mortgage activity continued its early-year upswing, with both conventional and government loan application volumes increasing last week, according to the Mortgage Bankers Association.
A week after it surged by nearly 28%, the MBA’s Market Composite Index, a measure of weekly application activity based on surveys of association members, jumped again by a seasonally adjusted 7% for the seven-day period ending Jan. 20. This week’s index includes an adjustment for the Martin Luther King Jr. holiday. Although volumes were up for the third week in a row, activity was still running almost 54% slower on a year-over-year basis.
Borrowers benefited from an ongoing decline in mortgage rates, which also dropped for a third straight week. “Overall applications increased with both gains in purchase and refinance activity,” said Joel Kan, MBA’s vice president and deputy chief economist, in a press release.
The seasonally adjusted Purchase Index climbed 3%, thanks to elevated business in the conventional market. Despite the increase, current home buying activity remains “tepid,” according to Kan, with weekly volume lower by 39% on a year-over-year basis.
But recent renewed interest in purchases, as well as the direction of rates and housing costs, is encouraging news ahead of the spring home buying season.
“If rates continue to fall and home prices cool further, we expect to see potential buyers come back into the market. Many have been waiting for affordability challenges to subside,” Kan said.
Inflation and the Federal Reserve’s response to it will determine where and when the housing market finally settles, Odeta Kushi, First American deputy economist, recently said in a research statement.
“Once mortgage rates peak, home sales volume and price declines will stabilize. That all depends on what the Fed chooses to do in the coming months and whether inflation begins to decline.” she said.
The Refinance Index also rose 15% from seven days earlier but came in 77% below year-ago levels, as most borrowers were already locked into lower interest rates, Kan said. The share of refinances relative to overall volume also increased to 31.9% from 31.2% a week earlier.
As mortgage application volumes have increased, a corresponding jump in average loan sizes so far this year is also taking place. The average amount recorded on new purchase applications came in 3.4% higher compared to the previous week, rising to $415,000 from $401,300. The mean refinance size climbed up 2.5% to $269,300 from $262,700. The average across all applications last week saw a 2.9% increase to $368,500 from $358,100.
With rates decreasing in recent months, interest in adjustable-rate mortgages have waned as well. The ARM share further slipped last week to 6.5% from 6.6%. During the fourth quarter, adjustable-rate mortgages were garnering over 10% of volume for a brief period at the height of the rate surges.
The share of federally sponsored activity in relation to total volume came in a notch higher overall, but noticeable changes were seen in the types of government loans sought. Federal Housing Administration-backed applications made up 11.9% of activity, falling from 13% a week earlier. But Department of Veterans Affairs-guaranteed mortgages increased their share by a slightly larger margin, increasing to 13% compared to 11.8% seven days prior. Volumes coming from the U.S. Department of Agriculture program remained at 0.6% week over week.
Meanwhile, mortgage rates for most loan types decreased again among MBA lenders last week, according to Kan.
The contract interest rate for the 30-year fixed mortgage with conforming balances of $726,200 or less averaged 6.2%. One week earlier, the rate came in at 6.23%. Points for 80% loan-to-value ratio loans increased to 0.69 from 0.67.
The average 30-year fixed-contract jumbo mortgage rate for loans exceeding the conforming amount took an even larger 18 basis-point drop to 5.92%, compared to 6.08% seven days prior. Points increased to 0.41 from 0.4.
The FHA-backed 30-year fixed rate mortgage slipped 4 basis points to an average of 6.22% from 6.26% the previous week, with points increasing to 1.1 from 1.05.
The average contract interest rate of the 15-year fixed mortgage similarly decreased 4 basis points to 5.54% from 5.58%. Points decreased to 0.51 from 0.54 for 80% LTV loans.
But the only increase of the week was for the average contract interest rate of 5/1 ARMs, which climbed 13 basis points to 5.44% from 5.31%. Points also increased to 0.83 from 0.74.