Low rates drive refi mortgage applications, but purchases still lag

Refinance mortgage application activity surged as interest rates fell to their lowest level since the start of 2018, but potential homebuyers remained sidelined due to economic uncertainty, according to the Mortgage Bankers Association.

"Coming out of the Memorial Day holiday, and likely impacted by the financial market volatility caused by the trade tensions, purchase application volume declined for the week," MBA Chief Economist Mike Fratantoni said in a press release. "Potential homebuyers may be more cautious given the heightened economic uncertainty."

The MBA's Weekly Mortgage Applications Survey for the week ending May 31 found that overall volume was up 1.5% due to a 6% rise in the refinance index from the previous week. This week's results included an adjustment for the Memorial Day holiday.

The seasonally adjusted purchase index decreased 2% from one week earlier, while the unadjusted purchase index decreased 14% compared with the previous week and was 0.5% higher than the same week one year ago.

"Mortgage rates dropped to their lowest level since the first week of 2018, driven by increasing concerns regarding the ongoing trade tensions with China and Mexico," Fratantoni said. "Some borrowers, particularly those with larger loans, jumped on the opportunity to refinance, bringing the index and average refinance loan size to their highest levels since early April. Additionally, refinances for FHA and VA loans jumped by 11%."

The refinance share of mortgage activity increased to 42.2% of total applications from 39.7% the previous week.

Adjustable-rate loan activity increased to 7.1% from 6.6% of total applications, while the share of Federal Housing Administration-insured loan applications decreased to 9.5% from 9.6% the week prior.

The share of applications for Veterans Affairs-guaranteed loans increased to 11.3% from 11.2% and the U.S. Department of Agriculture/Rural Development share decreased to 0.6% from 0.7% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) decreased 10 basis points to 4.23%. For 30-year fixed-rate mortgages with jumbo loan balances (greater than $484,350), the average contract rate decreased 9 basis points to 4.09%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased 9 basis points to 4.24%. For 15-year fixed-rate mortgages, the average decreased 8 points to 3.65%. The average contract interest rate for 5/1 ARMs decreased to 3.62% from 3.74%.