Mortgage application volumes decrease amid rising uncertainty

With a potential government shutdown and its likely effect on financial services dominating recent headlines, mortgage activity hit the brakes and fell for a second straight week, according to the Mortgage Bankers Association.

The MBA's weekly Market Composite index, a measure of loan applications based on surveys of the trade group's members, dropped a seasonally adjusted 6% for the seven-day period ending Sept 29, as mortgage rates also climbed again to another longtime high. A week earlier, applications had inched downward by 1.3%. Compared to the same survey week in 2022, the latest index finished 18.5% lower.

"Rates for all mortgage products increased, with the 30-year fixed mortgage rate increasing for the fourth consecutive week to 7.53% — the highest rate since 2000," said Joel Kan, MBA's vice president and deputy chief economist, in a press release. "As a result, mortgage applications ground to a halt, dropping to the lowest level since 1996."

The 30-year conforming average increased by 12 basis points from 7.41% the previous week. Borrower points, used to help buy down the interest rates, increased as well to an average of 0.80 from 0.71. 

Meanwhile, the contract average rate for 30-year jumbo mortgages jumped 17 basis points to 7.51% from 7.34%. Points decreased, though, to 0.74 from 0.78. 

While a shutdown was averted at the last minute, the temporary stopgap kept government operations running only for an additional 45 days. Another looming funding fight may mean more volatility for rates — and uncertainty for the housing market — until an agreement is reached, analysts have predicted.  

The upward rate pressure contributed to a decline in the MBA's Purchase Index to a seasonally adjusted 5.7% from the prior survey. Compared to the same period of 2022, purchase activity remained 21.5% lower. 

"The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market," Kan added. 

At the same time, the Refinance Index similarly dropped 6.6% week over week and came in 10.7% lower from levels of a year ago. Refinances garnered 31.7% of overall activity, down from 31.9% a week earlier.  

But with interest rates on its upward trajectory, the ARM share relative to total activity was 8%, increasing from 7.5% recorded seven days prior. Adjustable-rate mortgages typically trend in the same direction as interest rates, as borrowers see potential for some affordability relief at the beginning of the loan term. 

The Government Index tumbled 7.7% according to the MBA, helping to shrink the share of federally backed loan loans applied for last week. With Federal Housing Administration-sponsored purchases seeing virtually no change, FHA-sponsored loans managed to increase its share of activity to 14.5% share from 14.1% seven days earlier. That rise was countered by a slide in loans guaranteed by the Department of Veterans Affairs, which garnered 10.1% of activity, down from 10.9%. Applications coming through U.S. Department of Agriculture programs took the same 0.5% share week over week.

The contract rate for 30-year FHA-backed home loans also jumped alongside the conforming and jumbo averages, rising 13 basis points to 7.29% from 7.16% in the previous survey. Points increased to 1.01 from 0.96.

The average contract fixed rate of the 15-year mortgage among MBA lenders took a similar 13 basis point leap to land at 6.86% compared to 6.73% a week earlier, but points inched down to 1.14 from 1.17.

The 5/1 adjustable-rate mortgage, which begins with a fixed term before becoming variable after 60 months, finished last week at an average of 6.49%, inching up 2 basis points. Points used on the loans decreased to 1.21 from 1.58.