Mortgage volumes ride lower rates to a weekly gain

Favorable rates boosted mortgage activity last week after volumes decreased earlier in the month, though concerns over the U.S. economic recovery still abound, according to the Mortgage Bankers Association.

The MBA’s Market Composite Index, a measure of mortgage activity based on a survey of the association’s members, rose a seasonally adjusted 1.6% for the weekly period ending Aug. 20. The unadjusted index also inched up 1%. Compared to the same week last year, seasonally adjusted overall volume came in 4.3% lower.

The pace of both refinances and purchases contributed to the heightened activity. The Refinance Index climbed 1% week over week and was 3% higher than its level during the same week of 2020. The seasonally adjusted Purchase Index increased 3% from the previous week, while the unadjusted index showed a 1% gain. The unadjusted purchase volume was 16% lower than numbers reported one year ago.

“Lower rates led to an increase in refinance applications, with government-loan applications jumping 10% to the highest level since May 2021,” said Joel Kan, the MBA’s associate vice president of economic and industry forecasting, in a press statement.

Concerns about the prolongation of the pandemic kept interest rates down, according to Kan, with markets taking a wait-and-see approach before making major moves that could impact lending rates. “Treasury yields fell last week, as investors continue to anxiously monitor if the rise in COVID-19 cases in several states starts to dampen economic activity,” he said.

The average loan size shrank for the fourth consecutive week, coming in at $333,300 for all activity, a 1.7% decrease from $339,200 the prior week. Among refinances, the average amount of loans fell 2.6%, sliding down to $304,600 from $312,700 a week earlier. Mean purchase amounts also dropped, inching down 0.3% to $392,400 from $393,700 in the prior reporting period.

The decrease in average purchase loan size, in combination with growing application activity, may indicate first-time buyers in search of affordable homes are seeing some relief thanks to the recent inventory uptick in both newly built and existing homes, said Kan. Applications backed by the Federal Housing Administration, in particular, took a larger share of overall volume compared to the prior week. FHA-sponsored loans accounted for 11% of all activity, up from 9.4% a week earlier. Veterans Administration mortgages declined, though, dropping its share to 10% from 10.3% the previous week, while the percentage of applications backed by the U.S. Department of Agriculture remained unchanged at 0.4% week over week.

The refinance share of all applications saw no weekly change, again accounting for 67.3% of total volume. The share of adjustable-rate mortgages edged downward to 3.1% from 3.2% the previous week.

Interest rates fall across categories
After mortgage rates increased across the board just a week earlier, all categories headed in the other direction, retreating downward and favoring borrowers

• The average contract interest rate of 30-year fixed-rate mortgages with conforming loan balances of $548,250 or less decreased to 3.03% after posting at 3.06% the previous week. 

• Contract interest rate of 30-year fixed-rate jumbo loans with balances greater than $548,250 averaged 3.13%, a six basis point drop from the prior week’s 3.19%

• The average contract interest rate of  FHA-backed 30-year mortgages declined five basis points to 3.1% from 3.15% a week earlier. 

• The average contract interest rate of 15-year fixed-rate mortgages dropped to 2.38%, down from 2.41% in the previous reporting period. 
  
• The average contract interest rate for 5/1 adjustable-rate mortgages continued its seesaw action, dropping to 2.68%. A week earlier, the 5/1 ARM stood at 2.9%. Over the past three weeks, the average swung between 22 and 40 basis points in each direction on a weekly basis.