Mortgage activity cools after a one-week surge

Mortgage volumes dropped last week, as positive purchase demand was tempered by a softening refinance market.

The Mortgage Bankers Association’s Market Composite Index, a measure of weekly application volumes based on surveys of its members, declined 4% on a seasonally adjusted basis for the period ending Dec. 10. The unadjusted index fell 6% compared to the previous week, while seasonally adjusted activity was 31% lower from its level in the same week of 2020.

The Refinance Index decreased 6% after a one-week jump into positive territory. Although mortgage rates remained relatively flat, they were well above levels seen a year ago, when homeowners drove a refinance boom.

“With rates more than 40 basis points higher than last year, applications were down 41% on an annual basis. Fewer homeowners have a strong incentive to refinance at current rates,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release.

As they have for much of the past several weeks, purchases showed strength in a typically slower season, with the Purchase Index rising 1% week-over-week on a seasonally adjusted basis. An increase in conventional application volume helped offset falling interest in government purchase loans, according to Kan. The unadjusted purchase index dipped 4% from the previous seven-day period and registered a 9% decline from one year ago.

Heightened conventional activity drove up the average purchase loan size as well, sending it above $400,000 after falling below that level a week earlier. The mean purchase size jumped to $406,800, up 2.4% on a weekly basis from $397,200. Since late September, the purchase-size average among applications has come in above $400,000 for all but one week.

“Housing demand remains strong as the year comes to an end amidst tight inventory and steep home-price growth,” noted Kan.

The average size of refinances also crossed back over a major threshold, climbing 2.1% to $304,500 from $298,300 the previous week. The average amount for all mortgage applications during the weekly period also headed upward following a brief dip the prior week, coming in at $342,100, a 2.4% increase from $334,000.

The share of refinance activity relative to overall volume dropped to 63.3% from 63.9% a week earlier, while adjustable-rate mortgages accounted for 3.4% of activity, up from 3%.

Mortgages sponsored by the Federal Housing Administration took a 9.6% share of total volume during the week, down from 9.9% in the previous seven-day period. The percentage of Veterans Affairs-backed loan applications also inched downward to 10.6% from 10.7% one week prior, while the share of mortgages taken through U.S. Department of Agriculture programs remained the same at 0.5%.

Following volatility in previous weeks, mortgage rate averages moved little across most major categories, according to the MBA. The average contract interest rate for 30-year mortgages with conforming loan balances of $548,250 or less was unchanged at 3.3% compared to the prior period.

The average 30-year jumbo fixed-rate for mortgages with balances greater than $548,250 edged down by a single basis point to 3.32% from 3.33% the previous week.

The average contract rate for FHA-backed 30-year fixed mortgages increased to 3.37%, up from 3.35% the prior week.

For the second consecutive week, the average contract rate of 15-year mortgages dropped, falling four basis points to 2.58% from 2.62%.

After a 50-basis-point jump a week earlier, the average rate of the 5/1 adjustable-rate mortgage headed downward again, declining to 2.75%.