Application Volume Rises Despite Rate Surge

Mortgage loan application volume rose by 4.2% last week despite rates surging to their highest point since November 2008, the Mortgage Bankers Association’s (MBA) weekly survey shows.

The adjusted Market Composite Index, a measure of mortgage loan application volume, increased by 4.2%. The adjusted purchase index rose 8%, while the unadjusted purchase index was up by 6% and was 10% lower YOY.

The refinance index dropped by 3% and made up 29.7% of total applications. Refi volume is down 77% in the last year.

ARM activity rose to 10.6% of total applications. 

Mortgage rates increased by 33 basis points to 5.98%, their highest since 2008 and the largest single-week increase since 2009. MBA Associate Vice President of Economic and Industry Forecasting noted that rates moved as a result of the Federal Reserve’s 75-point hike.

“Purchase applications increased for the second straight week – driven mainly by conventional applications – and the ARM share of applications jumped back to over 10%. However, purchase activity was still 10% lower than a year ago, as inventory shortages and higher mortgage rates are dampening demand,” Kan said.

“The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and is potentially a sign that home price-growth is moderating.” 

 The 75-point increase is the Federal Reserve’s largest hike in a single meeting since 1994.

Chairman Jerome Powell said the Federal Reserve is watching prices carefully but declined to speculate on the hike’s potential impact. “How much will it really affect residential investment? Not really sure. How much will it affect housing prices? Not really sure,” he said.

“So it’s a complicated situation and we watch it very carefully. I’d say if you are a homebuyer… or a young person looking to buy a home, you need a bit of a reset.”

However, signs of a cooling market suggest that rising rates are deterring some buyers and may contribute to a decline in housing demand.

The FHA share of total applications rose from 11.8% to 12%. The VA share of total applications fell to 10.7% from 11.7%, while the USDA share dropped from 0.6% to 0.5%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 5.98% from 5.65%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose to 5.49% from 5.25%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA rose from 5.36% to 5.62%, and for 5/1 ARMs increased from 4.57% to 4.78%.