Mortgage activity increases for second consecutive week

Mortgage application volumes crept up for a second straight week thanks to a boost in refinances, but purchases remained flat, the Mortgage Bankers Association said in its final release of weekly loan survey results this year.

The MBA's Market Composite Index, a measure of new loan applications based on surveys of association members, increased a seasonally adjusted 0.9% for the seven-day period ending Dec. 16. But volumes were still 64% lower than they were over the same week a year ago. 

The Refinance Index jumped 6%, up for a third straight week, with receding mortgage rates drawing in some borrowers after they peaked at over 7% in October. But last week's refinance activity was still 85% under its level from the same week in 2021. 

The seasonally adjusted Purchase Index edged down 0.1% but stands 37% lower on a year-over-year basis.

"This is a particularly slow time of year for home buying, so it is not surprising that purchase applications did not move much in response to lower mortgage rates," said MBA Chief Economist Mike Fratantoni in a press release.

A likely recession will continue to dampen purchase demand in 2023, Fratontoni said, but signs of a turnaround could emerge if rates keep easing in response to one.  

"If mortgage rates continue to trend down, as we are forecasting, more buyers are likely to return to the market later in the year, as affordability improves with both lower rates and slower home-price growth," Fratantoni said.

Although fluctuating back and forth frequently, average purchase-loan amounts have shown clear evidence of a consistent overall pullback since hitting a record high of $460,000 in the spring. Last week, the average purchase size of new applications fell under the $400,000 mark once again, shrinking 0.8% to $398,000 from $401,400 one week prior. The mean refinance size clocked in at $271,100, also decreasing 1.6% from $275,500 seven days earlier. The overall average of all applications last week decreased to $358,300 compared to $364,400 the previous week, a drop of 1.7%.  

The difference in both adjustable-rate products and refinance volume shares from today compared to last year illustrate the dramatic changes surging interest rates have brought to mortgage operations. The refinance share of mortgage activity rose to 31.3% last week from 29.4% seven days earlier. But in MBA's final 2021 survey, they accounted for more than twice that portion at 65.2%.

Meanwhile, adjustable-rate mortgages, which offer borrowers lower payments in the first few years of their mortgage, typically see renewed interest as rates rise. ARMs made up 7.5% of all applications last week, inching down from 7.7% on a weekly basis, but more than double their 3.4% share at the end of last year.

Like the composite index, seasonally adjusted government activity also rose, up 1.3% from the prior week's reading. Federally backed loans grabbed a larger piece of the overall mortgage pie as well, thanks to an increase in VA-guaranteed applications. New applications coming from the Department of Veterans Affairs made up 11.9%, up from 11.5% one week earlier. But Federal Housing Administration-backed loans edged down to a 13% share from 13.1%. U.S. Department of Agriculture-backed mortgages accounted for the same 0.6% share week over week.  

Average mortgage rates among its members dropped across the board, even as the Federal Reserve upped its short-term target a week ago, the MBA found. 

The average fixed rate for 30-year contract fixed mortgages with conforming balances below $647,200 declined to 6.34%, its lowest level since September after rising last week to 6.42%. Points decreased to 0.59 from 0.64 for 80% loan-to-value ratio loans.

The contract rate for the 30-year fixed-rate jumbo mortgage with balances exceeding the conforming limit retreated 17 basis points to 5.97% from 6.14% one week earlier. Points increased to 0.53 from 0.42.

Meanwhile, the average rate for 30-year fixed contract FHA-backed loans dropped to 6.35% from 6.4% week over week, with points also decreasing to 0.99 from 1.03.

The average contract rate of the 15-year fixed mortgage slid 11 basis points to 5.81% from 5.92%. Points edged down to 0.53 from 0.54 for 80% LTV loans.

The contract interest rate for 5/1 ARMs averaged 5.43% last week, falling from 5.58% seven days earlier. Points increased to 0.95 from 0.8.