Mortgage lending cools for the second week in a row

Loan application volumes fell for the second week in row, as persistently elevated interest rates put a lid on borrower interest, the Mortgage Bankers Association said.

The MBA's Market Composite Index, a measure of weekly application activity based on surveys of the trade group's members, declined a seasonally adjusted 2.3% for the seven-day period ending April 26. The index continued its downward momentum after a 2.7% fall a week earlier. On a year-over-year basis, application volumes also finished 10.4% lower. 

"Application volume for both purchase and refinances declined over the week and remain well below last year's pace," said Mike Fratantoni, MBA senior vice president and chief economist, in a press release.

"Inflation remains stubbornly high, and this trend is convincing markets that rates, including mortgage rates, are going to stay higher for longer. No doubt, this is a headwind for the housing and mortgage markets," he added.

The average contract 30-year fixed rate for conforming balances, which make them eligible for sale to Fannie Mae and Freddie Mac, rose for the fourth week in a row to its highest mark since last November, Fratantoni said. 

The average climbed up 5 basis points to 7.29% from 7.24%, while points used to buy down the rate decreased to 0.65 from 0.66 for 80% loan-to-value ratio applications.

Incoming economic data has led most economists to pivot from early-year forecasts of falling rates this summer to the higher-for-longer outlook. Previous expectations of as many as six reductions in the federal funds rates in 2024 are also now falling by the wayside, as central bank officials meet this week. The Federal Open Market Committee is expected to hold the federal funds rate at current levels until at least its next meeting. 

Rates and high home prices helped lead the MBA's seasonally adjusted Purchase Index down 1.7% from the prior survey period. The latest application levels are also 14.5% below year-ago volumes. As rates turned up this year, home prices, similarly, continued their upward climb over the winter, according to the latest S&P CoreLogic Case-Shiller index.

Meanwhile, the Refinance Index took a drop of 3.3% week over week but saw a smaller annual decline of 1%. The refinance share relative to overall volumes also pulled back to 30.2% from 30.8%.

Overall volumes fell for both conventional and government lending. The Government Index pulled back a seasonally adjusted 3.8% from the previous week, while the share of federally backed activity decreased in tandem. 

Federal Housing Administration-sponsored applications made up 12.7% of activity compared to 12.8% in the prior survey. The share of Department of Veterans Affairs-backed mortgages declined to 11.3% from 11.7%, while applications from the U.S. Department of Agriculture accounted for the same 0.4% of volume as seven days earlier. 

"One notable trend is that the ARM share has reached its highest level for the year at 7.8%," Fratantoni said. Adjustable-rate mortgage volumes typically grow when fixed averages surge. But even while nabbing a larger share, total activity was flat, with the ARM Index registering an 0.3% week over week decrease.  

Still, while the conforming rate increased last week, other fixed averages moved in different directions. The fixed contract rate for 30-year jumbo mortgages slid down 6 basis points to 7.39% from 7.45%. Borrowers used 0.46 in points compared to 0.56 seven days earlier. 

On the other hand, the contract 30-year fixed rate for FHA mortgages averaged 7.09%, jumping 8 basis points from 7.01%. Points increased to 0.98 from 0.94 for 80% LTV-ratio loans.

The contract average of the 15-year fixed mortgage inched down to 6.74% from 6.75% in the prior weekly survey. Points also edged downward by 1 basis point to 0.63 from 0.64.

The mean contract rate of the 5/1 ARM, which starts fixed for a 60-month term, declined to 6.6% from 6.4% week over week. Borrower points averaged 0.75 compared to 0.87 in the previous survey period.