Refinance activity declines to lowest levels since early 2020

Declining activity for both purchases and refinances led to a decrease in the mortgage index last week, even with interest rates slightly retreating.

The Mortgage Bankers Association Market Composite Index, which measures application volume through a survey of members, dipped 3.3% on a seasonally adjusted basis for the seven-day period ending Oct. 29. The unadjusted index dropped 4% from one week prior, while total seasonally adjusted volume came in 26% lower than its level in the same week one year ago.

The Purchase Index inched down a seasonally adjusted 2% from the previous week and 3% unadjusted. Compared to the same period of 2020, last week’s unadjusted purchase volume level came in 9% lower. But a robust market still exists among buyers, according to the MBA.

“Purchase activity continues to be held back by high prices and low for-sale inventory, but current application levels still point to healthy housing demand,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press release. “MBA is forecasting for a record $1.6 billion in purchase mortgage originations this year and sustained demand leading to another record year in 2022.”

Refinances presented a different story, as activity hit its lowest point since January 2020. The Refinance Index decreased 4% week over week and stood 33% below its mark in the same week last year.

“Government refinance applications fell for the sixth straight week, as it becomes evident that an increasing number of borrowers have already refinanced,” Kan said.

A dip in mortgage rates caused by economic concerns, such as supply-chain delays, wasn’t enough to spur demand, as most of the decline came toward the end of the week, he noted.

Refinance applications also took their smallest share of overall activity since July, accounting for 61.9% of volume, compared to 62.2% a week earlier. The percentage share of adjustable-rate mortgage applications edged back upwards to 3.2% from 3.1%.

The share of government-backed loans relative to total volume also fell last week, due not only to fewer refinances, but also a drop in purchases. Federal Housing Administration-sponsored applications accounted for 9.2% of activity, compared to 10.4% one week earlier. The share of mortgages taken through the Department of Veterans Affairs decreased to 9.9% from 10.6% the previous week, while U.S. Department of Agriculture-backed loans equaled 0.5%, unchanged for the week.

With a decline in government activity, average loan sizes recorded an increase for the first time in three weeks, rising slightly to $335,900 from $334,600, a 0.4% move upward on a weekly basis. The mean amount of refinance applications also climbed to $291,700, a 0.9% uptick from $289,200 posted in the previous seven-day period. The average purchase-mortgage size shrank, albeit slightly, by 0.5% to $407,600 from $409,500 the week prior.

Mortgage rates fell across all loan types, as concerned investors turned to Treasuries, pushing yields and rates lower.

• The average contract interest rate for 30-year fixed-rate mortgages with conforming balances of $548,250 or less dropped six basis points to 3.24% a week after hitting 3.3%, its highest percentage in eight months.

• The 30-year jumbo fixed rate mortgage for balances greater than $548,250 fell to 3.29% from 3.34% the previous week. 

• The 30-year fixed-rate loan backed by the FHA also registered an average of 3.29%, down from 3.31% seven days earlier.

• After coming in at its highest since the first quarter last week, the 15-year fixed-rate mortgage average retreated by a single basis point to 2.58% from 2.59%.

• The 5/1 adjustable rate average also edged down one basis point week over week, dropping to 2.88% from 2.89%.