With rates at 20-year highs, app volume likely to sink more

Mortgage rates hit a 20-year high this past week as Treasury yields surged in the aftermath of last week's Federal Open Market Committee meeting.

In turn, application volume sank by a seasonally adjusted 1.3% with purchase submissions down 2% for the week ended Sept. 22 from the prior seven-day period, according to the Mortgage Bankers Association's Weekly Application Survey.

The 10-year Treasury yield has remained elevated since the Federal Open Market Committee meeting last week, especially due to investors' reaction to a widely held belief that rates will stay higher for longer.

"Overall applications declined, as both prospective homebuyers and homeowners continue to feel the impact of these elevated rates," said Joel Kan, the MBA's deputy chief economist, in a press release.

The average rate for 30-year conforming mortgages ($726,200 or below) was 7.41%, the highest since December 2000, and a 10-basis-point gain from the prior week.

"The purchase market, which is still facing limited for-sale inventory and eroded purchasing power, saw applications down over the week and 27% behind last year's pace," Kan pointed out. "Refinance activity was down over 20% from last year and accounted for approximately one third of applications."

In the previous week of Sept. 15, when conforming mortgages rose to 7.31%, application volume actually increased by 5.4%.

When the results are taken together with this week's survey, it looks like higher rates have had a limited effect on new submissions. If this situation continues, that is likely to change.

"While the weekly decline in applications was relatively small, the cumulative effect remains strong as purchase demand faces the deepest deficits versus the same week pre-pandemic levels that we've seen, outside of the holidays last year," said Andy Walden, ICE Mortgage Technology's (formerly Black Knight)  vice president of enterprise research.

The MBA has only been tracking jumbo rates since January 2011. The average rate for this week of 7.34% is an all-time for the series. It was 2 basis points higher than the previous week.

Federal Housing Administration-insured mortgages reached their highest average rate since March 2002, at 7.16%, a gain of 8 basis points from seven days earlier.

Finally, the 15-year FRM reached 6.73%, an 11 basis point rise and the highest since July 2001.

Adjustable rate mortgages were not immune to higher coupons, at 6.47%, compared with 6.42% one week prior. Meanwhile the share of ARM applications during the time frame rose to 7.5% from 7.2%..

The refinance index was down 1% compared with the prior week and 21% lower than the same period last year. However, the share of these loans grew to 31.9% from 31.6% the previous week.

Melissa Cohn, regional vice president of William Raveis Mortgage, found it "interesting" that the refi share is now nearly one-third of all applications even with rates rising.

"Those who are taking mortgages today are doing so with the intention of refinancing when rates drop in the next 12 to 24 months," Cohn said.

ICE's data pointed out the penalty refinance borrowers are taking in the current market.

"Through August, nine out of every 10 refis already involved the borrower raising their first lien rate, to the tune of plus 2.34 points on average, in order to access equity," Walden pointed out. "Though the refi market is still facing near record low volumes, there remains a base level of cash-out activity that we expect will continue."

By product type, FHA share fell to 14.1% from 14.2% and Veterans Affairs to 10.9% from 11%. But the U.S. Department of Agriculture picked up some share, at 0.5% from 0.4%.