Mortgage activity rises for first time in over a month

Mortgage application volumes increased for the first time in five weeks, as conforming 30-year interest rates receded, according to the Mortgage Bankers Association.

The MBA's Market Composite Index, a measure of weekly loan application activity based on surveys of the trade group's members, jumped a seasonally adjusted 7.2% for the seven-day period ending June 9. Despite the turnaround, the uptick in activity came from depressed levels following a weeks-long acceleration of mortgage rates, which peaked in late May. Overall volumes were still 32% below numbers in the same time frame of 2022. 

"Rates that are still more than a percentage point higher than a year ago, and low for-sale inventory continue to constrain home buying activity in many markets," said Joel Kan, MBA's vice president and deputy chief economist, in a press release. 

The contract 30-year fixed rate for conforming mortgages with balances below $726,200 slid downward for a second straight week to an average of 6.77% compared to 6.81% in the previous survey. Borrower points for 80% loan-to-value ratio loans edged down to 0.65 from 0.66.

But heading in the other direction, the 30-year jumbo rate for loans with balances above the conforming amount climbed up 5 basis points to end up higher than the conforming average. The contract rate rose to 6.79% from 6.74% the prior week, while points decreased to 0.5 from 0.56.

The jumbo rate's surge ahead of the 30-year conforming rate suggests widespread industry pullback in the market for higher-value loans may be taking place, with banks growing reluctant to hold them in their books. It comes after the MBA also reported availability of jumbo-loan products falling for the first time in three months, a scenario some analysts said would likely occur after the recent sale of First Republic Bank, who was active in the segment. Some independent mortgage banks, though, recently announced they would be adding or expanding their jumbo offerings.

But with other interest rates flat or lower, the MBA's seasonally adjusted Purchase Index managed to climb up 7.6% week over week. Volume was still 27.5% under its mark at the same time in 2022, as scarce inventory and elevated rates continue to prevent any purchase momentum over the past year. 

Online real estate brokerage Redfin reported this week that close to 92% of homeowners currently sit on a mortgage rate below 6%. Sixty-two percent of borrowers hold rates under 4%. The disparity between the rates many currently have and current levels has led to a shortage of new listings, due to what many refer to as the lock-in effect. Potential sellers would rather stay put than list their homes and take on a much higher mortgage rate that comes with a move.

"High mortgage rates are a double whammy because they're discouraging both buyers and sellers — and they're discouraging sellers so much that even the buyers who are out there are having trouble finding a place to buy," said Taylor Marr, Redfin deputy chief economist, who said the lock-in effect looked set to linger.

"Mortgage rates probably won't drop below 6% before the end of the year, and most homeowners wouldn't be motivated to sell unless rates dropped further," Marr said.

Still, some buyers are managing to snap up opportunities, even at the more affordable end of the market, according to the MBA. "The average loan size on a purchase loan decreased for the third straight week, as we continue to see more first-time home buyer activity in the purchase market," Kan said.

The mean amount reported on new purchase-loan applications slid 1% last week to $425,100 from $429,700 seven days earlier, dropping to its most affordable mark since late January, according to the MBA survey. 

Meanwhile, the average refinance size shot up 4.5% to $263,200 from $251,800 a week earlier. The overall average across all new applications last week came in at $380,900, just a fraction below the previous survey's $381,200.

As average sizes went up, the Refinance Index also increased 6%, but remained 41% lower than their levels from a year ago. The same headwinds impacting homebuying are being felt more acutely in the refinance market. 

"Elevated rates have reduced the benefit of a rate/term refinance for many borrowers and continue to discourage cash-out refinances," Kan said. Refinance loans also made up a 27.3% share of all applications, the same as it did one week earlier. 

The share of adjustable-rate mortgages, meanwhile, shrank to 6.5% from 6.8% a week earlier. Interest in ARMs often correlate inversely with the direction of mortgage rates

The number of federally backed applications increased last week, but at a slightly slower rate than overall volumes, with the seasonally adjusted Government Index up 6.5%. The share of government-sponsored loans relative to total activity ended up flat as a result. 

Federal Housing Administration-backed mortgages accounted for 13% of all applications, down from 13.2% a week earlier. That decline was offset elsewhere by an increase in the share of applications guaranteed by the Department of Veterans Affairs, which inched up to 12.6% from 12.5% week over week. Meanwhile, U.S. Department of Agriculture-backed mortgages also grew to 0.5% of activity, up from 0.4%. 

Although jumbo rates ended up higher last week, it was the only increase among loan types tracked by the MBA.

The average contract rate for 30-year FHA-backed mortgages fell 3 basis points to 6.7% from 6.73%, with borrower points edging down to 1.14 from 1.15 for 80% LTV-ratio loans.

The 15-year fixed rate averaged 6.25% for a second straight week, with points rising to 1.05 from 0.62.

The contract 5/1 ARM, which starts at a fixed rate before adjusting to market levels in 5 years, declined 3 basis points to 5.9% from 5.93% one week prior. Points increased to 1.17 from 0.96.