Purchase applications fall to 9-year low

New loan activity picked up at the start of 2023 after a steep decline at the end of December, even as purchase numbers fell to their lowest level since 2014, according to the Mortgage Bankers Association.

The MBA's Market Composite Index, a weekly measure of loan volumes based on surveys of association members, increased a seasonally adjusted 1.2% for the period ending Jan. 6. The uptick came one week after the index had registered a 26-year low. Compared to the same time period of 2022, the new year's first week of applications came in 68% lower.  

A rise in refinances brought on by lower interest rates helped lift the index, but its effect was countered by further slowing of purchases. The seasonally adjusted Purchase Index edged down 1% on a weekly basis and 44% annually, falling to its most depressed reading in years. 

"Purchase applications continued to be hampered by broader weakness in the housing market and declined slightly over the week, with the index slipping to its lowest level since 2014," said Joel Kan, MBA's vice president and deputy chief economist, in a press release.

Recent data from several sources pointed to a slower than typical winter market, with November pending sales coming in below estimates. Homes were also sitting on the market for an average of 40 days before being sold in December, more than a week longer compared to a year earlier, according to Redfin.

The Refinance Index climbed 5% from seven days earlier. Despite the uptick, volumes were still 86% below its level of a year ago and came in slower compared to more recent activity. 

"There was an increase in refinance activity as a result of the 16-basis-point decline in rates, as both conventional and government refinance applications increased," Kan said. "However, the overall pace of refinance applications was lower than November and December's 2022 averages." 

Refinances also accounted for a 30.7% share relative to overall numbers, up from 30.3% one week prior. The current percentage, though, clocks in well below the past decade's average of 58%, according to the MBA.

Meanwhile, adjustable-rate mortgages made up 7.3% of activity, unchanged from seven days earlier.

The Conventional Index rose week-over-week as the new conforming balance went into effect, while the Government Index slowed, bringing down the percentage of federally sponsored loans. Applications backed by the Federal Housing Administration slipped to a 13.4% share from 14%, while Department of Veterans Affairs-guaranteed mortgages accounted for 13.2% compared to 13.4% the previous week. Mortgage applications coming through the U.S. Department of Agriculture took the same 0.6% share as it did a week earlier.

Growth in the conventional market also resulted in average loan sizes inching higher across the board after a drop to end 2022. Average purchase-mortgage amounts crept up 0.4% to $389,000 from $387,600. The mean refinance size climbed 2.4% to $261,600 from $255,400 seven days earlier. The overall average amount across all applications was $349,900, a 0.7% increase from $347,600 the prior week.

While most interest-rate averages among MBA lenders climbed higher in the final data release of 2022, economic news brought them back down in the new year, the MBA reported. 

"Mortgage rates declined last week as markets reacted to data showing a weakening economy and slowing wage growth. All loan types in the survey saw a decline in rates," Kan said.

The contract rate for 30-year fixed mortgages with balances below the new conforming value of $726,200 or less averaged 6.42%, dropping from 6.58% a week earlier. Points remained at 0.73 for 80% loan-to-value ratio loans.

The average contract interest rate for 30-year jumbo mortgages with balances higher than the conforming amount slid 3 basis points to 6.09% after holding at 6.12% the previous two weeks. Points increased to 0.66 from 0.45. 

The contract average rate for 30-year FHA-backed loans fell 6 basis points to 6.39% from 6.45%, while points decreased to 1.03 from 1.24. 

The 15-year fixed contract rate dropped back below the 6% mark to an average of 5.94%, compared to 6.06% seven days earlier. Points decreased to 0.62 from 0.7. 

Taking the largest plunge among averages last week was the 5/1 adjustable rate, which came in 24 basis points lower at 5.37%, down from 5.61%. Points increased to 0.72 from 0.62 for 80% LTV loans.