ARMs are up, while overall volumes go back down

With affordability decreasing, conventional loan borrowers stayed home last week and sent mortgage activity sliding down to levels last seen in 1995, according to the Mortgage Bankers Association.

The MBA's Market Composite Index, which tracks mortgage application activity based on a weekly survey of the trade group's members, declined 6.9% on a seasonally adjusted basis for the period ending Oct. 13. The drop comes just a week after the index registered a small uptick of 0.6%, while compared to the same survey period one year ago, volumes came in 18.4% lower.

"Both purchase and refinance applications declined, driven by larger drops for conventional applications," said Joel Kan, MBA vice president and deputy chief economist, in a press release. Overall activity came in lower for the third time in the past four weeks, and the Conventional Index showed an 8% drop over the seven-day period. 

Mortgage rates continued to bring scant relief for lenders, as the 30-year conforming average finished higher for the sixth week in a row, Kan said. The average contract rate for loans with balances below conforming limits climbed up 3 basis points to 7.7% from 7.67% in the prior survey. Borrowers typically applied 0.71 points to bring their rate down, falling from 0.75, for applications with an 80% loan-to-value ratio.

A retreat in other 30–year rates helped slow some of the recent surge, though, with the jumbo average falling to 7.56% from 7.7% week over week. At the same time, points jumped to 0.85 from 0.57.

After it managed to eke out a small gain the prior week, the seasonally adjusted Purchase Index tumbled 5.6% in the face of the ongoing rate pressure, according to the MBA.

"Purchase applications were 21% lower than the same week last year, as home buying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory," Kan said. The average purchase-loan size came in at $412,600, the smallest since early September.

The latest survey arrives after Redfin estimated earlier this week that the median-priced home in the U.S. now requires an annual income of almost $115,000 when factoring in all costs, including current interest rates. The number has surged by more than 50% since the start of the COVID-19 pandemic in 2020. At the same time, median American household income in 2022 came in just under $75,000, according to the U.S. Census Bureau.  

While the purchase market slowed, the MBA's Refinance Index took an even steeper 9.9% dive from the previous survey to land back at its lowest levels since early 2023. Refinance activity dropped 11.9% from the same period in 2022 as well. Last week, refinances garnered 30.5% of all volume, decreasing from 31.6%. 

The share of adjustable-rate mortgages, meanwhile, grew in response to the run-up in rates, making up 9.3% of all applications, the largest portion in 11 months, up from 9.2% seven days earlier. But following a 15.3% spike in the prior survey, the ARM Index declined 6.2%, almost entirely due to the slowdown in conventional lending. 

Lending of government-backed mortgages also declined on a weekly basis, but the larger slowdown in the conventional market lifted the share of federal activity relative to the total. Applications guaranteed by the Federal Housing Administration made up 14.8%, rising from 14.4% a week earlier. The share of loans backed by the Department of Veterans Affairs represented 10.7% compared to 10.2%, while applications coming through U.S. Department of Agriculture programs accounted for 0.5%, as it did in the prior survey.

The FHA-backed 30-year mortgage backed down to an average rate of 7.36% from 7.4% week over week among MBA lenders, while borrower points used on the loans decreased to 1.02 from 1.08.

The contract average of the 15-year fixed mortgage nudged upward 1 basis points to 6.98% from 6.97%. Points fell to 1.04 from 1.18. 

A week after a significant 16 basis point fall helped lead to a rise in activity, the average 5/1 ARM rate headed in the other direction, jumping to 6.52% from 6.33%. Points accelerated to 1.5 from 0.9 for 80% LTV loans.