Mortgage lenders see inventory, buyer interest returning

Mortgage purchase activity picked up with renewed demand coming in the government-backed market even with rates flattening last week.

The contract 30-year fixed rates pulled back by a single basis point to an average 6.71%, according to the Mortgage Bankers Association's weekly survey of member lenders. The rate remained essentially unchanged after it rose to 6.72% seven days earlier, which was the first increase in nine weeks. 

Despite higher interest rates, purchase applications rebounded, rising for a second straight week. The MBA's seasonally adjusted Purchase Index nudged up another 0.7% after posting an increase of 0.1% in the prior survey. Year over year, the index was up 6.9%.

"Purchase applications saw the strongest weekly pace in almost two months," said Joel Kan, MBA vice president and deputy chief economist in a press release. 

Borrowers taking out Federal Housing Administration-backed mortgages accounted for much of the boost upward, with volumes up 5.7% on a weekly basis. Mortgage applications coming through the Department of Veterans Affairs also came in higher. 

The rise in FHA lending suggests momentum potentially shifting for some buyers, "as the combination of loosening housing inventory and slowly declining mortgage rates have presented this segment of buyers with more opportunities," Kan added. 

A rise in the number of for-sale listings each month have lifted supply of both new and existing homes up from historic lows. At the same time, affordability constraints are giving pause to potential buyers, which, combined, will lead to further purchase opportunities, according to Mark Fleming, chief economist at First American. 

"As existing homeowners increasingly accept the 'higher for longer' mortgage rate environment and decide to list their homes for sale, it's reasonable to expect months' supply will creep higher, further cooling price appreciation," Fleming said. First American's February's Real House Price Index showed affordability improving from a year ago thanks to slower appreciation.  

"The most likely scenario is that months' supply continues to trend higher, further cooling house price growth, but not quite enough to see a price decline nationally," Fleming added. 

Despite the increase in purchases last week, a lag in refinances led the MBA's Market Composite Index, which tracks total application activity based on surveys of MBA members, to drop for a second straight survey period. The index fell a seasonally adjusted 2% for the week ending March 21, following a 6.2% decline seven days earlier. Last week's total volume, though, was 33.6% higher than the same period in 2024.

The Refinance Index also retreated for a second straight week, following a 'boomlet' of activity spurred by falling interest rates earlier this winter. The index declined 5.3%, but refinance activity leaped 63.2% from a year ago. The refinance share relative to total mortgage activity, decreased to 40.4% from 42% in the previous survey.

While it helped push purchase application levels to recent highs, government-backed lending largely maintained the same share as it had a week earlier. FHA-backed mortgages accounted for the same 16.5% share week over week. The slice of VA-guaranteed applications inched down to 14.5% from 14.6%, while mortgages coming through U.S. Department of Agriculture programs headed in the other direction, garnering 0.6% of activity, up from 0.4%.