Mortgage volume flattens despite elevated purchase lending

The Mortgage Bankers Association's Market Composite Index, a measure of weekly loan application volumes based on surveys of MBA members, edged down a seasonally adjusted 0.2% for the period ending July 5. Data was adjusted to account for the Independence Day holiday.

Volumes decreased for the second week in a row, after a 2.6% pullback in the previous survey. Compared to the same week in 2023, activity also fell 1.1%. 

The latest contraction in volume comes as mortgage rates headed in different directions, but the most common 30-year averages remained within a few basis points of their prior weekly level. Still, lenders felt the lingering effect of a late-June rise.

"The recent uptick in mortgage rates has slowed demand," said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

The average conforming 30-year fixed rate for loans with balances eligible for sale to government-sponsored enterprises retreated 3 basis points to 7% from 7.03% the previous week. At the same time, borrowers typically took out 0.6 worth of points to help buy down the rate for 80% loan-to-value ratio applications, down from 0.62. 

The 30-year jumbo average for balances above conforming levels headed in the other direction to land at 7.13% up from 7.11% seven days earlier. Points decreased to 0.38 from 0.5. 

Purchase activity grew week over week, primarily due to federally guaranteed loan programs, but the increase was offset by slowing refinances. 

The seasonally adjusted Purchase Index climbed up 1%, recovering from the last survey's drop. Activity decreased from year-ago levels, though, by 12.7%. Despite signs of returning inventory, prospective homeowners are still finding limited affordability, keeping many on the sidelines.     

The Refinance Index finished lower for the fourth straight week, falling 2.2%, even as Department of Veterans Affairs-backed loans shot up 12.7%. But refi volumes also managed to surge 27.9% higher year over year.

Much of this year's elevated refinance activity has come from loans originated since 2022, when rates first began their rapid upswing, ICE Mortgage Technology recently reported. The average 30-year rate hit its recent peak last fall, approaching 8%. 

Growth has been modest, though. "Although home equity gains have been significant in recent years, most borrowers do not have much of an incentive to refinance at current rates," Kan noted. 

Refinances also represented 34.9% of total weekly volume, down from 35.7% seven days earlier. 

Meanwhile, the share of adjustable-rate mortgages relative to overall activity grew to 6.2% from 6% the prior week. Consumer interest in ARMs tends to rise and fall alongside fixed interest rates. 

Government-sponsored loans nabbed a larger slice of activity, pushed upward by purchases and VA refinances.The share of mortgages backed by the VA expanded to 13.7%, up from 12.9%, offsetting Federal Housing Administration-guaranteed application activity, which fell to 12.5% from 13.1%. Originations coming through U.S. Department of Agriculture programs made up 0.4% of volume, up from 0.3% in the previous survey.  

The uptick in FHA-backed purchases occurred in the same week when its average rate inched back 3 basis points to 6.87% from 6.9%. Borrower points decreased to 0.92 from 0.95 for 80% LTV-ratio loans. 

The average 15-year contract fixed rate increased 7 basis points to 6.63% from 6.56% one week earlier. Points to buy down the rate also finished 7 basis points higher at 0.61 from 0.54. 

The average rate for the 5/1 ARM, which starts with a fixed 60-month term, saw a 16 basis point drop to 6.22% from 6.38%. Average points headed in the other direction to 0.6, up from 0.54 seven days earlier.