Purchase-loan activity falls to lowest mark in over a month

Purchase-loan application volume dropped to its lowest level in over a month, bringing overall activity downward for the first time in three weeks, according to the Mortgage Bankers Association.

The MBA's Market Composite Index, a measure of weekly application activity based on surveys of association members, fell a seasonally adjusted 1.8% for the period ending July 21, erasing the 1.1% rise reported seven days earlier. Meanwhile, on a year-over-year basis, volumes finished 25% lower.  

Numbers went down primarily due to a 2.5% decrease from the previous week in the seasonally adjusted Purchase Index. The decline in purchase volume sent the index down to a mark last seen in early June, even while interest rates held steady, according to Joel Kan, vice president and deputy chief economist of the Mortgage Bankers Association. Purchase activity also fell 24.1% on an annual basis.

"Mortgage rates were essentially flat last week but remained high, with the 30-year fixed staying at 6.87% and contributing to a pullback in mortgage applications," Kan said in a press release. Meanwhile, borrower points used for the 30-year conforming mortgage edged down to 0.65 from 0.66 for 80% loan-to-value ratio loans.

The average fixed rate of the 30-year jumbo mortgage for balances above the conforming limit of $726,200 in most markets also stayed nearly flat, inching up by a single basis point to 6.9% compared to 6.89% in the previous survey. Points used by borrowers stayed at 0.64 week over week. 

The slowdown in purchase mortgages was especially pronounced for Federal Housing Administration-guaranteed loans, Kan noted. A contraction in federally backed purchases "contributed to an increase in the overall average purchase loan size to $432,700, its highest level since the end of this May," he said.

The mean purchase amount's sudden surge comes after gradual pullbacks for much of the past two months. Last week's average jumped up 3.4% from the prior week's $418,600. The increase also comes as several housing research groups continue to report 2023 home prices on the rise again over the first half of the year.

The average refinance-application size, though, came in 2.4% lower from the previous survey to land at $251,800 compared to $257,900. But due to the gains in purchase amounts, the overall average size reported across all applications grew 2.2% to $381,200 from $372,900.

Meanwhile the Refinance Index slipped 0.4% from seven days earlier when it swung higher by over 7%, with applications down 29.6% from a year ago. The share of refinance applications relative to overall volume increased, though, to 27.3% from 26.8%. 

The sharp fall in government-backed purchase activity led the segment to smaller shares in volume week over week. FHA-sponsored mortgages accounted for 12.7% compared to 13.6% in the prior survey. Loans guaranteed by the Department of Veterans Affairs garnered a 12.1% share, the same as one week earlier. The U.S. Department of Agriculture-backed share of applications also remained the same at 0.5%.

Similar to 30-year and jumbo rates, movements among other fixed mortgages were muted over the weekly period in comparison to volatility earlier this summer. The fixed contract average of the FHA-backed 30-year loan increased by 3 basis points to 6.8% from 6.77%, with points decreasing to 1.03 from 1.12.

The average fixed contract rate of the 15-year mortgage climbed 1 basis point to 6.37% from 6.36%. Borrowers typically used 0.75 points, up from 0.72 a week earlier.

The 5/1 adjustable-rate mortgage average, which starts and remains fixed for the first half-decade before becoming variable, clocked in at 6.01% compared to 6.27% in the prior survey. Points increased to 1.25 from 0.91. ARMs, which have seen renewed interest this year, accounted for a 5.9% share of all applications last week, decreasing from 6.3%.