Mortgage volumes fall amid market uncertainty

Following a brief surge, mortgage volumes decreased last week, as rate volatility drove down refinance activity, according to the Mortgage Bankers Association.

The MBA’s Market Composite Index, a measure of loan volume based on a survey of association members, dropped a seasonally adjusted 1.2% for the weekly period ending March 11 and was 35% below levels in the same week one year ago. An uptick in purchases was offset by a larger drop in refinances, as fixed interest rates jumped.

“Rates are now roughly a full percentage point higher than a year ago and continue to hamper refinance activity,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release.

The Refinance Index declined 3% from a week earlier, with activity coming in 49% lower than the same seven-day period of 2021. Weekly refinance numbers fell for both conventional and government-backed mortgages, according to Kan.

The seasonally adjusted Purchase Index grew 3% week over week, though, with the MBA reporting gains among conventional mortgages and loans backed by the Department of Veterans Affairs. Compared to the same time frame in 2021, seasonally adjusted purchase volumes were 8% lower.

Purchases have come in at higher prices so far this year, with the average size of new loans setting records in six out of the first eight weeks. The mean purchase size remained elevated last week, averaging $453,200, the second-highest ever recorded. That represented an increase of 0.5% from $450,900 seven days earlier. The average refinance amount, though, declined to $294,000 from $299,900 one week prior, a drop of almost 2%. Average loan sizes for new mortgage applications overall remained relatively flat week over week, declining by only $100 from $376,200 to $376,100.

The share of refinances in overall volume inched downward again, and, for the third straight week, they made up less than half of activity — 48.4%. One week earlier, refinances had taken a 49.5% share. Adjustable-rate mortgages, though, increased its share of applications to 5.6% from 5.3%.

Although seasonally adjusted government activity dropped by a little over 1% week over week, the share of applications coming via federal programs remained flat relative to total volume. Federal Housing Administration-sponsored loans accounted for 8.7% of weekly activity, the same percentage as seven days earlier, while VA-backed loans edged up to a 10.5% share from 10.4%. Applications taken through the U.S. Department of Agriculture also accounted for the same share week over week at 0.5%.

Mortgage rates and their impact on volumes continue to be difficult to forecast due to “significant uncertainty” surrounding Federal Reserve policy and the situation in Ukraine, Kan said. The unpredictability could remain for some time. After dropping the previous week, average fixed interest rates among MBA members increased across all categories tracked by the association, but the adjustable rate decreased.

“Investors are weighing the impacts of rapidly increasing inflation in the U.S. and many other parts of the world against the potential for a slowdown in economic growth due to a renewed bout of supply-chain constraints,” he said. Most economists are also expecting the Fed to announce an increase in the federal funds rate on Wednesday.

The average 30-year contract fixed-rate for conforming balances below $647,200 spiked 28 basis points last week to 4.27% compared to 4.09% seven days prior.

The 30-year fixed rate for jumbo mortgages with balances greater than $647,200 averaged 4.02%, up from 3.79% the previous week.

The contract rate average of FHA-backed 30-year loans rose to 4.23%, a week-over-week increase of 11 basis points from 4.12%.

The average contract interest rate of 15-year fixed mortgages came in at 3.55%, up from 3.39% the prior week.

While fixed contract rates all increased, the average of the 5/1 adjustable-rate mortgage fell two basis points to 3.36% from 3.38% a week earlier.