Affordability concerns suppressing mortgage activity

Mortgage application volumes retreated last week, even as lower interest rates managed to sustain refinance interest, according to the industry's leading trade group. 

The MBA's Market Composite Index, a measure of application volumes based on surveys of the trade group's members, pulled back a seasonally adjusted 2.2% for the period ending July 12. Loan activity decreased after the index accelerated 3.9% seven days earlier. Compared to a year ago, however, activity came in 1.2% higher.

Volumes declined despite interest rates falling to their lowest point in five months. The 30-year conforming fixed rate averaged 6.82%, down 5 basis points from 6.87% a week earlier.  Points used to buy down the rate inched up to 0.59 from 0.57 for 80% loan-to-value ratio transactions.

While downwardly trending rates kept refinances near their same level in the prior survey, they failed to provide momentum in the purchase market, pushing the composite index lower for the third time in four weeks

The seasonally adjusted Purchase Index ended up 4% lower week over week. Volume also came in 15.3% under its mark from one year ago. 

"Purchase applications decreased, as ongoing affordability challenges persist with rates at their current levels and with home-price appreciation still strong in many markets," said Joel Kan, MBA vice president and deputy chief economist, in a press release.

A challenging purchase environment still stands in the way of homeownership for many buyers, even as supply improves and rates head lower, according to several housing researchers. Evidence of such trends came in the latest existing-home sales data, which showed purchases  at their slowest pace in over a decade in June despite the greatest amount of inventory since late 2020. At the same time, though, enough pent-up demand exists to continue pushing prices to new record highs.

The MBA Refinance Index helped offset some of the decline in purchase loans, rising 0.3% from the previous survey period, as borrowers in conventional and Federal Housing Administration-backed segments drove growth for a second consecutive week. 

"The conventional refi index was at its highest level since September 2022," Kan said.

Refinance activity slowed from the previous survey's 15.2% surge, though, as the Department of Veterans Affairs segment accounted for fewer loans. 

Compared to 12 months earlier, overall refi numbers were up 38.3%. The share of refinance applications relative to total activity also grew to 39.7% from 38.9% week over week. 

Government-sponsored lending saw a larger dropoff than the overall market, shrinking its share of volume as a result. FHA-backed mortgages nabbed a 13.4% slice of activity, edging back from 13.5% one week earlier. Applications coming from the Department of Veterans Affairs represented a 14.8% share of the market down from 15.2%. U.S. Department of Agriculture-guaranteed loans made up the same 0.4% share from the prior week. 

In tandem with the conforming average, other rates tracked by the MBA headed downward last week with one exception. The 30-year fixed jumbo average inched up 2 basis points to 7.09% from 7.07% seven days earlier. Borrower points decreased to 0.54 from 0.57.

Meanwhile, the 30-year FHA-backed fixed mortgage came in at a mean rate of 6.71%, slipping 4 basis points from 6.75% in the previous survey. Points for 80% LTV-loans increased to 0.86 from 0.81.

The average 15-year fixed contract rate plunged 28 basis points to 6.21% from 6.49% week over week. Points inched back at a more muted pace, with borrowers using, on average, 0.50, down from 0.51. 

The 5/1 adjustable-rate mortgage saw an average of 6.19% compared to 6.33% seven days prior. Points pulled back to 0.52 from 0.58. 

The share of ARMs, which start with various fixed terms that later become variable, remained at 5.8%, the same as one week earlier.