Mortgage volumes decline after interest rates increase

The Mortgage Bankers Association Market Composite Index, a measure of mortgage volume based on a survey of association members, decreased 1.1% on a seasonally adjusted basis for the weekly period ending Sept. 24, while the unadjusted index declined 1% from a week ago. Compared to the same period in 2020, seasonally adjusted application volume was 4.5% lower.

“The increase in rates – mostly later in the week – led to a decrease in both purchase and refinance applications, with a prominent decline in government-loan applications,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release.

The seasonally adjusted Purchase Index inched down 1%, while on an unadjusted basis, purchases fell 2% week over week. The seasonally adjusted index came in 12% below levels from the same time period last year. The Refinance Index also slipped 1% from the prior week, but activity was 0.4% higher compared to a year ago.

The drop in government-sponsored applications signaled a reversal in trends from just a few weeks earlier. Loans sponsored by the Federal Housing Administration accounted for 10.4% of volume, down from 11.5% the prior week. The share of Veterans Affairs-backed mortgages dropped to 10.2% of all applications compared to 10.4% the previous week, while the percentage of loans backed by the U.S. Department of Agriculture slipped to 0.4% of the total from 0.5%.

Conventional loans countered the fall in federal applications, though, and registered an uptick, particularly for refinances. “This was perhaps a sign that some borrowers reacted to higher rates and decided to refinance,” Kan said.

Refinances ended up with a slightly larger share — 66.4% — of total mortgage volume compared to 66.2% recorded in the last weekly period. The percentage of adjustable-rate mortgage applications also rose to 3.4% of total activity, up from 3.3%.

With higher conventional-loan activity, average mortgage sizes jumped more than 3% across the board from the previous week. The purchase average reached its highest point since May. “With home-price appreciation continuing to run hot, increasing more than 19% annually in July, applications for larger loan amounts continue to outpace lower-balance loans,” Kan said.

The average size of purchase applications came in at $410,300, a 3.5% increase from $396,300 posted the prior week, while the mean amount of refinance loans climbed 3.4% to $311,200 from $301,000. The overall average size of the week’s volume was $344,500, also 3.4% higher from $333,200 reported seven days earlier.

News coming out of the Federal Reserve led to the week’s rate movement, according to Kan. “Increased optimism about the strength of the economy pushed Treasury yields higher following last week’s FOMC meeting,” he said. “Mortgage rates in response rose across all loan types.”

• After holding at 3.03% for four weeks, the average contract interest rate of 30-year fixed-rate mortgages with conforming loan balances of $548,250 headed upward, rising seven basis points to 3.1%.

• The average contract interest rate of 30-year fixed-rate jumbo loans with balances greater than $548,250 rose to 3.14%, up from 3.11% a week earlier.

• The average contract interest rate for FHA-backed 30-year mortgages posted a two-basis-point increase, coming in at 3.09% versus 3.07% the previous week. 

• The 15-year mortgage average climbed to 2.43% from 2.34% a week earlier. 

• The contract interest rate for 5/1 adjustable-rate mortgages jumped 26 basis points week over week to 2.77% from 2.51%.