Rising rates send mortgage volumes downward for a second week

Mortgage volumes decreased for the sixth time in seven weeks, as spiking interest rates suppressed borrower demand, according to the Mortgage Bankers Association.

The MBA’s Market Composite Index, a measure of loan activity based on surveys of association members, fell a seasonally adjusted 8.1% for the week ending March 18. Seasonally adjusted weekly volume came in 39% below its level during the same period one year ago.

Both refinances and purchases posted declines over the seven-day period. The Refinance Index dipped 14% week over week and was 54% lower from the same time frame in 2021. With interest rates now over 4% compared to a range near 3% a year ago, the precipitous annual drop comes as no surprise, said Mike Fratantoni, MBA’s senior vice president and chief economist.

The seasonally adjusted Purchase Index also fell 2% compared to the prior week, with a larger drop in federally backed purchase volume, and a small decline in conventional purchase loans, according to Fratantoni. Compared to the same week in 2021, purchases were down by 12%, seasonally adjusted.

Even as activity decreased, demand for the limited inventory available continues to drive up the size of purchase loans, whose average rose to a record for the seventh time this year, climbing up another 1.5% to a new high of $460,100 from $453,200 the week prior. The accelerated pace of price growth has turned homeownership into a more elusive goal for many hopeful buyers, especially those applying through programs sponsored by the Federal Housing Administration and Department of Veterans Affairs.

“First-time homebuyers, who rely on these government programs, are increasingly challenged by both the rapid increase in home prices and higher mortgage rates,” said Fratantoni in a press release.

“Repeat homebuyers, who are more likely to use conventional loans, benefit from the gains in home equity realized on a sale which can be used to fuel their next purchase, even with rates moving higher,” he added

Meanwhile, the mean refinance size increased at a similar pace of 1.4% to hit an average of $298,200, up from $294,000 a week earlier. The average size of all new loan volume during the week surged to $387,500 from $376,100, a 3% jump.

With the fall in refinances, their share of activity also decreased for the fourth week in a row, declining to 44.8% of total volume, compared to 48.4% seven days earlier. But adjustable-rate mortgages saw their share of activity increase again, making up 6.4% of all applications, up from 5.6% week over week.

The seasonally adjusted Government Index fell by over 11%, with the share of federally sponsored loans also coming in lower relative to overall numbers compared to the prior weekly reporting period. Mortgages backed by the FHA accounted for 8.8% of new activity, inching up from 8.7% a week earlier, but VA-backed applications tumbled to a 9.8% share, down from 10.5%. New loans taken through U.S. Department of Agriculture programs also decreased to 0.4% of total volume from 0.5% seven days earlier.

Average mortgage rates among MBA members increased across all categories tracked by the association, with the 30-year conforming rate hitting its highest point in two years. “The jump in rates comes as markets moved to price in a much faster pace of rate hikes, as well as expectations of fewer MBS purchases from the Federal Reserve,” said Fratantoni.

At the Federal Open Market Committee meeting last week, the central bank raised the federal-funds rate by a quarter percent, with economists expecting at least three more hikes before the end of this year.

The news helped the 30-year contract fixed-interest-rate average for conforming balances of $647,200 or less surge another 23 basis points to 4.5%. One week earlier, the average stood at 4.27%, which was itself a 28-basis-point increase.

The 30-year fixed rate for jumbo mortgages with balances greater than $647,200 climbed to 4.11% compared to 4.02% a week earlier.

The average contract rate for FHA-backed 30-year mortgages increased to 4.4%, up 17 basis points from 4.23% the prior week.

The 15-year contract fixed interest rate also rose, averaging 3.76% after coming in at 3.55% a week earlier.

After edging down slightly the prior week, the average contract interest rate for the 5/1 adjustable-rate mortgage headed back upward, standing at 3.39%, up three basis points from 3.36%.