Mortgage volumes hold steady over pre-holiday week

Mortgage volumes came in relatively flat over the last unofficial week of summer, with a slight decline that continued a downward path from multi-decade lows reached in August, according to the Mortgage Bankers Association. 

The MBA's Market Composite Index, a measure of weekly loan volume based on surveys of association members, dropped a seasonally adjusted 0.8% for the seven-day period ending Sept. 2. It was the fourth consecutive decrease for the index, which is now 63% lower than its level of a year ago.

"With the 30-year fixed rate rising to the highest level since mid-June, application volumes for both purchase and refinance loans dropped," Mike Fratantoni, MBA's senior vice president and chief economist, said in a press release.

The Refinance Index decreased just over 1% from the previous week and came in 83% lower year-over-year. However, the share of refinances relative to overall volume crept up by 30.7% from 30.3%. That's still a far cry from a year ago, when they made up 66.8% of all MBA loan activity.

Government-sponsored enterprise Fannie Mae also similarly noted in an analysis of data from its automated underwriting system that refinance dollar volume declined to its lowest since January 2019. The rapid rise in interest rates this year has eliminated refinance incentive for many homeowners, resulting in steep job cuts at lenders nationwide. 

Meanwhile, the MBA's seasonally adjusted Purchase Index also edged down by 0.7% week over week. Current purchase activity is 23% under the pace of a year ago, although Fratantoni said there's potential for buyers to return. 

"Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand," he said. 

Other research released recently also indicated a noticeable deceleration in home price growth, with some markets even reporting monthly decreases — trends which may bring purchases back up as the market rebalances itself after setting records over the past year. 

Over the past week, though, the average purchase-loan size inched higher, with the mean amount on new applications at MBA lenders rising to $411,300 from $409,100 a week earlier, an increase of 0.5%. The average is still well below the record of $460,100 set in March of this year.

The average refinance amount declined, falling 2.6% to $269,300 from $276,600 seven days earlier. The overall average loan size of new applications over the week came in at $367,600, a fraction lower from $368,900 seven days earlier. 

Meanwhile, the share of federally backed activity relative to overall volume remained flat. Although loans insured by the Federal Housing Administration increased their proportional size to 13.3% from 13% the previous week, the uptick was offset by a pullback in the share of applications coming from the Department of Veterans Affairs. VA-sponsored mortgages accounted for 10.8% of new loans, down from 11.1% the prior week. Applications coming from U.S. Department of Agriculture programs remained at 0.6% of volume.

The share of adjustable-rate mortgages also held steady week-over-week accounting for 8.5% of overall activity. Rapidly moving interest rates this year have led to renewed interest in ARMs, and they continued their recent upward trajectory, rising for all loan types reported by the MBA.   

"Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer," Fratantoni said. 

The contract average among MBA lenders for 30-year fixed-rate mortgages with conforming balances of $647,200 or less hit 5.94%, up 14 basis points from 5.8% a week earlier. Points increased to 0.79 from 0.71 for 80% loan-to-value ratio loans.