Purchase mortgage applications increase as inventory picks up

Mortgage application volumes ticked up across the board last week, with a rise in purchase activity coming at the same time the housing market saw an unexpected uptick in listings, according to new research.

The Mortgage Bankers Association's Market Composite Index, a weekly measure of application volumes based on surveys of the trade group's members, climbed higher by a seasonally adjusted 2.8% for the period ending Nov. 10. Activity rose for the second straight week after a similar 2.5% increase in the previous survey.  On a year-over-year basis, though, volumes were 16.9% lower.

"Both purchase and refinance applications increased to the highest weekly pace in five weeks but remain at very low levels," said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

"Despite the recent downward trend, mortgage rates at current levels are still challenging for many prospective homebuyers and current homeowners," he added.

After falling in the previous two surveys, including a significant 25-basis-point dip the prior week,  the contract 30-year conforming fixed rate average hit pause, remaining at 7.61%. But the latest pullback comes after an almost two-month runup of nearly 70 basis points to multi-decade highs. Borrower points used to help bring down the rate slipped to 0.67 from 0.69 seven days earlier for 80% loan-to-value ratio mortgages.

But the average contract rate of the 30-year jumbo loan for balances above conforming limits headed higher to 7.65% from 7.58% week over week, with points inching up to 0.67 from 0.65.

The MBA's Purchase Index saw a 3.3% seasonally adjusted rise, but activity was still 21.5% lower from the same week one year ago, as scarce inventory this year continues to stymie the mortgage industry. But in welcome news for lenders, the housing market has seen recent atypical seasonal growth in listings, coinciding with the increases in the index, according to research from Redfin. At the start of November, the total number of homes on the market hit its highest point since early this year, the online real estate brokerage said.

Similarly, the MBA's Refinance Index inched up 2% from the previous week but remained 3.5% under its level of a year ago, with the majority of homeowners hanging on to lower interest rates, Refinance applications made up 31.9% of new loan activity, increasing from 31.4%.

Federally sponsored mortgages grew faster than conventional loans, with a 4.4% spike in the Government Index. The rise was mostly driven by increased activity coming though the Department of Veterans Affairs, which was up by over 10%. The share of government-backed loans, likewise, expanded. 

During Veterans Day week, VA-backed applications made up 11.2% of activity relative to total volume, up from 10.5% seven days earlier. But the share of mortgages guaranteed by the Federal Housing Administration shrank to 14.4% from 14.7%, while loans coming through U.S. Department of Agriculture programs nabbed the same 0.5% as it did in the prior survey. 

After surging in October alongside the 30-year average, the share of adjustable-rate mortgages accounted for 8.8% of volume last week, pulling back from 9.8% and 10.7% in the previous two surveys. 

ARM activity, which tends to rise and fall in the same direction as fixed rates, decreased even as the average 5/1 ARM average dropped 11 basis points to 6.65% from 6.76% one week earlier. The typical number of points used for the loans, which start with a fixed five-year term before becoming variable, dropped to 0.72 from 0.80.  

As it did for the conforming average, the fixed contract rate for 30-year FHA-backed mortgages remained unchanged week over week, holding at 7.36%. Borrower points decreased to 0.85 from 0.91 for 80% LTV loans.

The average contract 15-year fixed rate, meanwhile, slid 4 basis points to 6.94% from 6.98% in the previous survey, while points used by borrowers increased to 1.0 from 0.88.