Mortgage application volume down even with lower rates

Mortgage applications decreased 1.5% on a seasonally adjusted basis from two weeks earlier amid the annual end-of-year slowdown despite lower rates from global tensions, according to the Mortgage Bankers Association.

The MBA's Weekly Mortgage Applications Survey for the week ending Jan. 3 found the refinance index decreased 8% during the fortnight although it was 74% higher than the same time a year ago. The refinance share of mortgage activity went to 58.9% of total applications from 54.8% the week previous.

"Mortgage rates dropped last week, as investors sought safety in U.S. Treasury securities as a result of the events in the Middle East, with the 30-year fixed mortgage rate declining to its lowest level — 3.91% — since early October," Mike Fratantoni, MBA senior vice president and chief economist, said in a press release. "Despite lower rates, refinance volume decreased these last two weeks, and we expect that it will slowly trail off in the first half of 2020 as long as mortgage rates remain in this same narrow range. Homeowners would need to see a sharp drop in rates to reinvigorate the refinance wave seen in 2019."

The purchase index rose 5% on a seasonally adjusted basis from two weeks ago while decreasing 14% on an unadjusted basis. Overall purchase volume rose 2% higher from the year before.

"The end of the year is the slowest time for home sales, so it is not at all surprising that activity was light," Fratantoni said. "However, after a seasonal adjustment, purchase application volume was up relative to the pre-holiday period and started off 2020 ahead of last year's pace. We expect that the strong job market will continue to support purchase activity this year, and the uptick in housing construction towards the end of last year should provide more inventory for prospective buyers."

Adjustable-rate mortgage activity decreased to 3.8% from 4.1% of total applications and the share of Federal Housing Administration-insured loan applications inched up to 12.2% from 12.1% the week prior.

The share of applications for Veterans Affairs-guaranteed loans increased to 14.1% from 13.9% and the U.S. Department of Agriculture/Rural Development share dropped to 0.5% from 0.6%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) fell 4 basis points to 3.91%. For 30-year fixed-rate mortgages with jumbo loan balances (greater than $484,350), the average contract rate also fell 4 basis points to 3.88%.

For 30-year fixed FHA-insured mortgages, the average contract interest rate dropped 2 basis points to 3.85%. The average for 15-year fixed-rate mortgages also decreased 2 basis point to 3.35%. The average contract interest rate for 5/1 ARMs rounded out the trend, falling 8 basis points to 3.19%.