Mortgage activity increases for first time in nearly a month

After dropping to their lowest weekly level in more than two decades, mortgage applications increased for the first time in five weeks, even in the midst of a spike in interest rates, according to the Mortgage Bankers Association. 

The MBA’s Market Composite Index, a measure of application volumes based on surveys of association members, jumped up a seasonally adjusted 6.6% for the weekly period ending June 10. Compared to the same week one year ago, mortgage activity came in 54% lower.

“Despite the increase in rates, application activity rebounded following the Memorial Day holiday week but remained 0.29% below pre-holiday levels,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release. 

Both refinances and purchases saw a weekly uptick. The Refinance Index increased 4%, but current volumes are still 76% off the pace seen in the same 7-day period last year when interest rates were more than 2% lower. 

The seasonally adjusted purchase index rose 8% but was also 16% below its level of one year ago. “Ongoing inventory shortages and affordability challenges have cooled demand, coinciding with the rapid jump in mortgage rates,” Kan said.

The decreased competition for purchases foreshadowed a pullback in home prices, which was reflected in average loan sizes last week. The mean amount of all new loan applications fell more than 1% to $376,000 from $380,000 seven days earlier. Average purchase sizes dropped almost 2% to $419,000 from $426,900 week over week. But the average refinance loan amount increased over the weekly period to $283,400 from $281,500, rising 0.7%.

Adjustable-rate mortgages, which have garnered renewed interest in the current high-rate environment, took an 8.1% share of application volume last week, down from 8.2% seven days prior. Refinances accounted for 31.7% of all activity, dropping from 32.2%, sustaining its months-long trend. 

Increases were reported in the government-loan market for a second consecutive week, with both purchase and refinance activity accelerating. The seasonally adjusted Government Index rose nearly 11%. 

Federal Housing Administration-backed loans accounted for an 11.8% share of volume, up from 11.3% one week prior. Department of Veterans Affairs-sponsored mortgages made up 11.7% of the total application pool, increasing from 11.4% seven days earlier, while the share of applications coming via U.S. Department of Agriculture programs increased to 0.6% from 0.5%. 

Interest rate averages among MBA members climbed noticeably week over week, including for the 30-year conforming loan, which hit its highest level since 2008. 

“Mortgage rates followed Treasury yields up in response to higher-than-expected inflation and anticipation that the Federal Reserve will need to raise rates at a faster pace,” Kan said.

The average contract interest rate for 30-year fixed conforming loans with balances of $647,200 or below surged 25 basis points to 5.65% compared to 5.4% the previous week. 

The 30-year jumbo-loan contract fixed rate for balances above the conforming amount jumped 26 basis points to 5.25% from 4.99% week over week.

The average contract rate of the 30-year fixed mortgage backed by the FHA increased to 5.36% from 5.3% one week earlier.

Averages for other rate terms also came in higher on a weekly basis. The average contract rate of a 15-year fixed mortgage surged to 4.79% from 4.62%, while the 5/1 adjustable-rate loan average increased 6 basis points, rising to 4.57% from 4.51%.