Mortgage applications fell last week following interest rate surge

Climbing interest rates slowed the pace of new mortgage applications last week, as the number of refinances retreated, according to the Mortgage Bankers Association latest data.

The MBA’s Market Composite Index, which tracks total mortgage application volume through a survey of lenders, fell 4.2% on a seasonally adjusted basis and 4% unadjusted for the week ending May 21. Total activity is down a seasonally adjusted 7%, compared to the same week one year ago, when the economy started to pick up after pandemic-related shutdowns.

After posting weekly gains four out of the last five weeks, the Refinance Index decreased 7% from one week earlier. Applications fell for both conventional and government-backed refinancing. Compared to the same week last year, refinance volume was down 9%

However, purchases increased, with the Purchase Index rising a seasonally adjusted 2% week over week. On an unadjusted basis, the gain came in at 1% but was down 4% from a year ago.

“Purchase applications increased for the second time in three weeks, rebounding after a rather weak April with mostly weekly declines,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

The refinance share of total mortgage applications fell to 61.4% from 63.3% one week earlier. Low interest rates had led many homeowners to refinance during the first and second quarters this year, offsetting declines seen in the Purchase Index.

The share of adjustable-rate mortgages comprised 4% of total application volume, compared to 3.9% the previous week.

Average mortgage size holds steady

After several consecutive weeks of loan-size growth, the average price seen in both refinances and purchases fell, but the overall average for the week was unchanged, remaining at $338,500. The average size of refinance mortgages averaged $293,700, down from $296,100 a week earlier, while purchase loans declined to $409,700 from $411,400. But the change in dollar volume of purchase applications is up 15.8% compared to the same week in 2020.

“Demand is robust throughout the country, but home buyers continue to be held back by the lack of homes for sale and rapidly increasing home prices,” Kan said.

Federal Housing Administration-sponsored loans decreased to 9.1% of total application share volume, compared to 9.2% the prior week, while mortgages backed by Veterans Affairs fell to 11.2% from 12%. The percentage of loans coming through U.S. Department of Agriculture programs stayed at 0.4% for the week.

Conforming and FHA 30-year rates increase

Contract interest rates of 30-year fixed-rate mortgages with conforming loan balances of $548,250 or less averaged 3.18%, climbing for the second straight week. The previous week saw the average at 3.15%. But the average rate of 30-year jumbo loans with balances greater than $548,500 declined slightly to 3.3% from 3.31%.

For loans backed by the FHA, the average contract interest rate of a 30-year fixed-rate-mortgage rose to 3.2% from 3.13% the prior week,

The average contract interest rate of 15-year fixed-rate mortgages showed a decline to 2.53% from 2.54% one week earlier, while the contract interest-rate average of 5/1 adjustable-rate mortgages climbed up to 2.81%, compared to 2.58% the previous week.