Mortgage activity falls due to rising interest rates

Mortgage volumes took their most precipitous drop since June last week, as climbing interest rates and high home prices drove down borrowing activity, according to the Mortgage Bankers Association.

The Market Composite Index, a measure of loan applications based on a survey of the association’s members, decreased a seasonally adjusted 6.9% for the weekly period ending Oct. 1. On an unadjusted basis, the index also declined 7% for the seven-day period, with seasonally adjusted activity also coming in 15% below levels reported in the same week of 2020. Slowdowns in both purchases and, more noticeably, refinances contributed to the week’s drop-off, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Higher rates are reducing borrowers’ incentive to refinance, as declines were seen across all loan types,” said Kan, in a press release.

The Refinance Index tumbled 10% from the prior week — posting its lowest volume in three months — and came in 16% lower than numbers from a year ago. The share of refinances relative to the overall loan volume also shrank to 64.5% from 66.4% one week earlier.

The Purchase Index also edged down 2% from the previous week on both a seasonally adjusted and unadjusted basis, with unadjusted volume down 13% from what was reported in the same weekly period a year ago. Despite a 1% increase in government-loan purchases last week, the uptick did not offset a dip among conventional applications, according to the MBA.

Nor could it bring down the average purchase loan size, which remained nearly the same on a week-over-week basis at $410,500 compared to $410,300. “With home-price appreciation and sales prices remaining very elevated, applications for higher-balance, conventional loans still dominate the mix of activity,” Kan said.

Refinance amounts contracted, though, with the average size dropping 3.8% to $299,400 from $311,200 a week earlier. The size of all applications averaged $338,900, down 1.6% from $344,500.

The share of Federal Housing Administration-backed mortgages inched up slightly to 10.5% from 10.4% the previous week. Veterans Affairs-sponsored applications and U.S. Department of Agriculture-backed loans also increased their shares of overall volume by 0.1% each, with VA mortgages climbing to 10.3% from 10.2% during the prior weekly period. Loans backed by the USDA made up 0.5% of all applications, up from 0.4%.

The percentage of adjustable-rate mortgage applications relative to total activity was unchanged week over week, accounting for 3.4% of activity.

Fixed rates rise again 
For the second consecutive week, fixed-rate averages increased across all types, with the 30-year rate for conforming balances of $548,250 hitting its highest point since July — 3.14%. The rate was four basis points above the previous week’s 3.1%

The 30-year jumbo rate for loans greater than $548,250 averaged 3.2%, jumping six basis points from 3.14% a week earlier.

The 30-year fixed-rate average for FHA-backed loans climbed three basis points to 3.12% after coming in at 3.09% the prior week.

The average contract interest rate for 15-year fixed-rate mortgages edged up to 2.45%, increasing from 2.43% in the last weekly period.

While fixed-rate averages all moved higher, the 5/1 adjustable-rate mortgage registered a decrease, falling to 2.54% from 2.77% a week earlier.