Mortgage volumes increase for first time in a month

Downward trending interest rates contributed to a slight uptick in mortgage activity last week, the first increase in a month, according to the Mortgage Bankers Association.

The MBA's Market Composite Index, a measure of loan activity based on surveys of association members edged up a seasonally adjusted 1.2% for the week ending July 29. But volumes came in 62% lower year over year.

"The drop in rates led to increases in both refinance and purchase applications, but compared to a year ago, activity is still depressed," said Joel Kan, MBA's associate vice president of economic and industry forecasting, in a press release.

The Refinance Index increased 2% from the prior week but ran 82% below its pace in the same weekly period of 2021. The refinance share of activity relative to overall volume also crept up to 30.8%, compared to 30.7% seven days earlier. By comparison, in 2021's hot market, characterized by near record-low interest rates, refinances accounted for more than two-thirds of all applications in the last week of July.

The MBA's Purchase Index also inched up a seasonally adjusted 1% week over week. But compared to the same seven-day stretch last year, purchases came in almost 16% lower. Recent trends, including indications of increased inventory, have hinted at a shift toward buyers over sellers in the housing market and could explain some renewed borrower interest.

"Lower mortgage rates, combined with signs of more inventory coming to the market, could lead to a rebound in purchase activity," Kan said.

In addition to increased activity, average loan sizes also climbed, increasing among both purchases and refinances over the week. The mean amount of purchase-loan applications rose for the second consecutive reporting period, coming in at $413,000, up 0.6% from $410,400 seven days earlier. The average refinance size clocked in at $275,800, an uptick of 2.4% from $269,400 week over week. The overall average amount of new loan applications settled at $370,800, 1% higher than the previous week's mean size of $367,100.

Meanwhile, government-backed activity also increased by 1.3% from the prior week according to the MBA, but its share of applications remained the same, with shifts only occurring among the agencies guaranteeing the loans. Federal Housing Administration-insured applications accounted for 11.9% of activity, down from 12.1% the prior week, but loans backed by the Department of Veterans Affairs increased its share to 10.8% from 10.6%. The portion of new mortgage applications coming from the U.S. Department of Agriculture's Rural Housing Service was unchanged at 0.6%.

Adjustable-rate mortgages, which have seen a surge of renewed interest this year after fixed rates accelerated, made up 8.4% of activity relative to total volume, falling from 9.1% a week earlier. At the end of 2021, adjustable-rate loans only accounted for less than 4% of activity, but are now regularly taking shares between 8% and 10%.

Interest rates among MBA lenders fell across the board by double-digit basis points last week following the announcement of tighter monetary policy by the Federal Reserve. "Treasury yields dropped as a result, as investors continue to expect a weaker macroeconomic environment in the coming months," Kan said. 

The contract interest rate of the 30-year fixed-rate mortgage with conforming balances of $647,200 or less dropped 31 basis points to 5.43%, the largest weekly decline since 2020, Kan said. Seven days earlier, the rate averaged 5.74%.

The contract average of the 30-year fixed jumbo mortgage with balances above the conforming amount fell to 5.06% from 5.32% the prior week. 

The average of FHA-backed contract 30-year mortgages also declined 15 basis points to 5.39% from 5.54% seven days earlier.

The 15-year fixed contract rate average fell by 21 basis points to 4.74% from 4.95% the previous week. 

After increasing seven days earlier, the 5/1 adjustable-rate contract average headed downward, falling 12 basis points to 4.55% from 4.67%.