Mortgage applications slow as coronavirus-related uncertainty returns

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Mortgage applications decreased 0.8% from one week earlier as the latest spread of COVID-19 weighed on the minds of consumers looking to buy or refinance, according to the Mortgage Bankers Association.

The MBA's Weekly Mortgage Applications Survey for the week ending July 24 found that the refinance index decreased 0.4% from the previous week although it was 121% higher than the same week one year ago. The refinance share of mortgage activity increased to 65.1% of total applications from 64.8% the previous week.

Demand for government-guaranteed products — mortgages backed by the Federal Housing Administration, Veterans Affairs and U.S. Department of Agriculture/Rural Housing Service — were most affected by the rising levels of uncertainty among consumers and lenders. In particular, FHA activity likely was constrained by a 14-basis-point rise in the average interest rate.

"Mortgage rates remained near record lows for conventional loans last week, and refinances in the conventional sector continued to slightly increase," Mike Fratantoni, the MBA's senior vice president and chief economist, said in a press release. "However, rates on FHA loans rose, leading to an almost 18% drop in FHA refinances."

"Homebuyers stepped back slightly, and there was a larger drop in purchase application volume for FHA, VA and USDA loans. This trend, along with the fact that average loan sizes are increasing, indicate that prospective first-time buyers are being impacted more by the rising economic stress caused by the resurgence in COVID-19 cases, as well as the uncertainty on how the next round of government support will take shape."

The seasonally adjusted purchase index decreased 2% from one week earlier, while the unadjusted purchase index decreased 1% compared with the previous week. However, it was 21% higher than the same week one year ago, and was the 10th consecutive week of year-over-year improvement.

Adjustable-rate mortgage activity increased to 3.2% from 3%, while the share of FHA loan applications decreased to 9.6% from 10.8% the week prior.

The share of applications for VA-guaranteed loans increased to 11.2% from 10.8% and the USDA/RHS share remained unchanged from 0.6% the week prior.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) remained unchanged at 3.2%. For 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400), the average contract rate increased 1 basis point to 3.52%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased 14 basis points to 3.27%. For 15-year fixed-rate mortgages, the average increased 5 basis points to 2.76%. The average contract interest rate for 5/1 ARMs increased to 3.08% from 2.89%.

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Mortgage applications Purchase Refinance Housing market Coronavirus Mortgage Bankers Association FHA The VA