Mortgage activity drops for first time in five weeks

After rising for most of March, new mortgage activity fell in the final week of the month, with both purchases and refinances slowing, the Mortgage Bankers Association said.

The MBA's Market Composite Index, a measure of weekly loan applications based on surveys of the trade group's members, dropped a seasonally adjusted 4.1% for the seven-day period ending March 31. On a year-over-year basis, volumes came in 45.3% lower. One week earlier, the index had risen by 2.9%.

Despite a drop in 30-year mortgage rates, the seasonally-adjusted Purchase Index slipped 3.5% from the prior week, with activity down 35.5% compared to the same survey period last year. 

Although buyer interest recently showed some signs of picking up, the trend did not translate into increased mortgage activity over the week, due, in part, to few sellers making homes available for sale. 

"Spring has arrived, but the housing market is missing the customary burst in listings and purchase activity that typically mark the season," said Mike Fratantoni, MBA's senior vice president and chief economist, in a press release. 

Meanwhile, the Refinance Index dropped 5.4% week-over-week and came in 59.5% below levels of a year ago, as many borrowers already sit on lower interest rates. The share of refinances relative to total volume also decreased to 28.6% from 29.1% the prior week.

The seasonally adjusted Government Index similarly declined, but even more steeply, coming in 8.4% lower from a week earlier. Shares of government-backed loan activity relative to total volume, likewise, shrank, with Federal Housing Administration-insured applications accounting for 12% of volume, down from 12.3%. Department of Veterans Affairs-guaranteed mortgages made up 11% of activity, compared to 11.6% seven days earlier, and the share of loans coming through the U.S. Department of Agriculture inched up to 0.6% from 0.5%.

Current levels of interest rates and prices are proving formidable to first-time buyers who frequently rely on government programs to make starter-home purchases, with the number hoping to use them likely to grow, Fratantoni said.

"We do expect strong demand from first-time home buyers over the next several years, given the large number of millennials hitting peak first-time home buyer age, but affordability remains a real challenge in this environment."

After housing costs largely flattened and even decreased on a monthly basis across the country toward the end of 2022, signs of a possible rebound in home prices began to emerge in the first quarter this year, further hampering affordability. Average purchase-loan amounts increased correspondingly, rising to a 2023 peak in mid March before slipping back downward two weeks ago. The mean purchase size on new applications fell again for a second straight survey to $428,000, inching down 0.6% from $430,500.  

Average refinance sizes also decreased 2.8% to $264,100 from $271,800 one week prior. The overall average amount across all loan applications landed at $381,100, representing a decrease of 0.8% from $384,300 seven days earlier.

Mortgage rates moved in different directions among categories tracked by the MBA. While the conforming 30-year average decreased for a fourth straight week, jumbo rates used for transactions with higher balances accelerated. 

"While we have seen relative weakness at the high end of the housing market in recent months, the divergence in rates suggests that banks may be tightening credit in response to recent challenges, preserving balance sheet capacity as deposit balances have declined. In recent years, most jumbo loans have been kept on depository balance sheets," Fratantoni said.

The average contract rate of the 30-year fixed mortgage with conforming balances of $726,200 or less fell 5 basis points week over week to 6.4% from 6.45%. Points for 80% loan-to-value ratio loans decreased to 0.56 from 0.62.

Thirty-year jumbo rates for loans with balances above the conforming limit jumped 9 basis points to 6.36% from 6.27%. Points slipped downward to 0.47 from 0.54. Loans for amounts above $726,200 are generally ineligible for sale to government-sponsored enterprises and may be held on lenders' balance sheets or sold to private investors.

The contract rate of 30-year fixed FHA-backed mortgages saw no change, staying at 6.33%, but points inched down to 0.92 from 0.93.

The 15-year fixed mortgage rate averaged 5.97%, rising 13 basis points from 5.84% a week earlier. Points decreased to 0.54 from 0.57.

Hybrid 5/1 adjustable-rate mortgages came in flat, with the average slipping by a single basis point to 5.6% from 5.62%. The loans carry a fixed rate for five years, before becoming variable. Points increased to 1.02 from 0.91 for 80% LTV loans. ARM-application volume, which tends to rise when rates increase and drop when they come in lower, garnered a smaller share relative to total loan activity, dropping to 7.2% from 7.7% the previous week.