Mortgage application volumes fall amid rising rate concerns

Mortgage application volumes dropped for the first time in three weeks as previous predictions of interest rate pullbacks appear to be on hold.

The Mortgage Bankers Association's Market Composite Index, a measure of weekly loan application activity based on surveys of the trade group's members, declined by a seasonally adjusted 1.6% for the period ending March 15. The fall comes after two consecutive weeks of increases, including a 7.1% upturn in the last survey. Year over year, volumes were 11.5% lower. 

"Mortgage applications continued to show sensitivity to rate movements, and both purchase and refinance activity decreased over the week," said Joel Kan, MBA vice president and deputy chief economist, in a press release. 

February's inflation report came in higher than anticipated, leading to growing uncertainty over when the central bank officials might lower the fed funds rate in 2024, Kan said. Investor activity following the economic data release helped lead mortgage rates higher, with consensus growing that a reduction would not occur until this summer at the earliest. 

The Federal Open Market Committee meeting this week is expected to result in no cut. 

The 30-year fixed-rate for conforming balances below $766,550 in most markets surged after three consecutive weekly drops to average 6.97%. Seven days earlier, the average came in at 6.84%. Meanwhile, points used to help buy down the rate inched down to 0.64 from 0.65 for 80% loan-to-value ratio applications. 

The recent stronger-than-expected economic data led Fannie Mae to raise its interest rate predictions for 2024 on Tuesday. The government-sponsored enterprise's chief economist said rates would likely not fall below 6% until at least the end of 2025, running counter to previous forecasts and dimming hopes among consumers anticipating some relief this year. 

Last week's higher rates contributed to a 1.2% seasonally adjusted drop in the MBA's Purchase Index. And compared to the same week in 2023, purchases were also down by 13.8%.

The elevated rate environment and an ongoing inventory shortage means little price relief and scarce opportunity for buyers in the current market. "With housing supply low and prices high, the average loan size for purchase applications increased to the highest level since May 2022," Kan said. 

The mean amount on new purchase-applications finished last week at $445,000, rising for the third straight survey period. By comparison, average purchase-loan sizes started 2024 at $402,900.

Meanwhile, the Refinance Index fell 2.5% after jumping 12.2% one week earlier. With most borrowers already holding on to rates below current levels, refinance activity remains sluggish and was down 2.9% from year-ago levels. Refinance activity relative to total volume also slid down to 31.2% after nabbing a 31.6% share seven days earlier. 

The seasonally adjusted Government Market Index also dropped last week by 1.8%, even as purchases saw a tiny uptick. The share of federally-backed loan activity was flat from the previous survey, with Federal Housing Administration-insured applications garnering 12.1% of volume, up from 12%. That increase was offset by a dip in Department of Veterans Affairs-guaranteed mortgages to 12.1% from 12.2% week over week. Loans resulting from the U.S. Department of Agriculture's program saw the same 0.5% share. 

Alongside the conforming average, fixed mortgage rates jumped across the board among MBA lenders, with the 30-year jumbo average leaping 10 basis points to 7.14% from 7.04% one week earlier. Points increased to 0.54 from 0.38 for 80% LTV-ratio loans. 

The average fixed rate on 30-year FHA-backed mortgage applications rose 12 basis points to 6.89% from 6.77%. Borrowers used 1.04 in points to bring down the rate compared to 0.95 during the prior seven-day period.

Meanwhile, the average 15-year fixed-contract rate climbed up to 6.49% from 6.37%. Points saw a 7 basis point decline to 0.7 from 0.77. 

The 5/1 adjustable-mortgage rate recorded last week's only decline with the MBA, dropping to an average of 6.33% from 6.38%. Points on the loans, which start out fixed for 60 months before adjusting to market levels, increased to 0.55 from 0.52. 

The ARM Index, which typically sees elevated activity when fixed rates rise, bucked the trend with a 7.3% drop. The share of adjustable-rate mortgages relative to total application volume also slipped to 7.2% from 7.7% seven days earlier.