Mortgage applications decline for second consecutive week

Loan application volumes dropped for a second consecutive week, but government-backed activity showed signs of an upswing, outperforming the conventional market, according to the Mortgage Bankers Association.

The MBA's Market Composite Index, a weekly measure of loan applications based on surveys of association members, slipped 1.9% on a seasonally adjusted basis for the period ending Dec. 2. The drop follows a smaller 0.8% decrease of one week earlier, while overall volumes came in 67% lower, seasonally adjusted, from the same seven-day period a year ago.

The Refinance Index increased 5% from the previous week, but post-Thanksgiving activity was still 86% lower on an annual basis. At the same time, the refinance share relative to total volume increased to 28.7% from 26.1%. A recent pullback in mortgage rates has done little to significantly turn around the outlook for refinances, with many homeowners already benefiting from the more favorable lending environment of 2020 and 2021.    

"The 30-year fixed rate was 73 basis points lower than a month ago — but was still more than three percentage points higher than in December 2021," said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association. The 30-year conforming fixed rate among MBA lenders in the post-Thanksgiving week averaged 6.41%. 

Meanwhile, the seasonally adjusted Purchase Index declined 3% week over week and posted a 41% drop from one year ago, even as home price growth show slows. Although conventional purchases dropped, the volume of new government-backed loans picked up some of that slack and helped bring down loan sizes, Kan said.

The average purchase amount of new applications dropped 3.2% to its lowest mark since January 2021, sitting at $387,300 compared to $399,900 seven days earlier. "The decrease was consistent with slightly stronger government applications and a rapidly cooling home-price environment," Kan said.

At the same time, the mean refinance size took a similar step back, falling 5.1% to $261,000 from $275,100. The overall average across all loans stood at $351,000, a 4.7% decline from $367,400 a week earlier. 

In tandem with the uptick in government-application volume, the share of federally guaranteed loans also grew across the three primary sponsors. As the Government Index increased 5% on a seasonally adjusted basis, Federal Housing Administration-backed mortgages accounted for 13.7% of all loans, up from 12.2% the prior week. Applications guaranteed by the Department of Veterans Affairs increased its share to 11.4%, compared to 11.2% seven days earlier, while U.S. Department of Agriculture-backed mortgages inched up to 0.6% of volume from 0.5%. 

Adjustable-rate mortgages accounted for a diminished share of the weekly volume, down to 7.6% compared to 9% a week earlier, shrinking as interest rates have headed downward over the past month. Last week, fixed rates again dropped across the board. 

The 30-year contract fixed rate for mortgages with conforming balances of $647,200 or less dropped 8 basis points to 6.41% from 6.49% the previous week, while points decreased to 0.63 from 0.68 for 80% loan-to-value ratio loans.

The average of the 30-year contract jumbo mortgage with balances exceeding the conforming amount tumbled 27 basis points to 6.08% after coming in at 6.35% a week earlier. Points decreased to 0.5 from 0.61.

The 30-year FHA-backed fixed-rate decreased to 6.39% from 6.57% seven days earlier, with points also falling to 0.93 from 1.14. 

The 15-year fixed-rate contract average slipped back under the 6% mark, falling 18 basis points to 5.84% from 6.02% the prior week. Points decreased to 0.55 from 0.69.

However, the 5/1 adjustable-rate mortgage headed in the other direction, with the contract average increasing to 5.59% from 5.48%. Points also increased to 0.91 from 0.89 for 80% LTV loans.