Purchase mortgages fell to a 2-month low in the final weeks of 2021

Mortgage activity cooled in the second half of December, with volumes falling for both purchases and refinances, according to data from the Mortgage Bankers Association.

The MBA’s Market Composite Index, which tracks loan applications based on a survey of members, decreased a seasonally adjusted 2.7% for the two-week period ending Dec. 31. Seasonally adjusted activity came in 36% lower than its level at the same time a year ago.

The Refinance Index declined by 2% over the final two weeks of December, with higher interest rates contributing to slowing activity, according to Joel Kan, MBA’s associate vice president of economic and industry forecasting. The index showed refinance activity was 40% below end-of-2020 volumes.

“Refinance demand continues to dwindle, as many borrowers refinanced in 2020, and in early 2021 — when mortgage rates were around 40 basis points lower,” he said in a press release.

The seasonally adjusted Purchase Index also decreased 4% from two weeks earlier, with new originations in the last seven days of December at its weakest level since October, Kan noted. But the sluggish pace of purchases to close out 2021 was an exception and not the norm for the year and unlikely to stick in 2022, Kan said.

“Despite supply and affordability challenges, 2021 was a record year for purchase originations. MBA expects 2022 to be even stronger, with total purchase activity reaching $1.74 trillion.”

While indexes were tracked on a two-week basis to close the year, the association calculated volume share and rates comparisons relative to the previous week.

Federal Housing Administration-backed applications accounted for 9.2% of all new mortgages in the last week of 2021, up from 8.5% seven days earlier. Mortgages sponsored by the Department of Veterans Affairs inched down to an 11.3% share relative to total volume from 11.4% the prior week, while the percentage of loans taken through the U.S. Department of Agriculture remained at 0.4% week over week.

Although refinance volumes decreased at year’s end, their share of overall mortgage activity rose to 65.4% from 63.9% one week earlier, while adjustable-rate applications accounted for 3.3%, down from 3.6%.

Surging prices dominated headlines throughout 2021 and was frequently reflected in the growth of average loan sizes, particularly for purchases. But the mean amount of new purchase loans decreased to close out December, dipping 3.3% week over week to $401,600 from $415,400. Weekly purchase averages ended the year above $400,000 for all but one seven-day period in the fourth quarter. The average refinance loan size also dropped, coming in at $294,600 compared to $313,000 seven days earlier, a difference of 5.9%. The average size of new loans overall decreased to $331,600, falling 5.2% from the prior week’s $350,000.

The average 30-year interest rate for conforming loans with balances of $548,250 or less hit its highest mark since April, rising to 3.33%, up two basis points week over week from 3.31%.

The average contract fixed rate for 30-year jumbo loans with balances exceeding the conforming amount also landed at 3.31%, falling from 3.35%.

The average contract rate for FHA-backed 30-year mortgages rose by a single basis point to 3.4% from 3.39% the previous week.

The 15-year fixed-rate mortgage average was unchanged on a weekly basis, remaining at 2.6%, while the average contract interest rate of 5/1 adjustable-rate mortgages tumbled to 2.45% from 2.74%.