Applications Rebound As Rates Exceed 7%

Mortgage applications went up last week, benefitting from VA and FHA activity.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – increased by 0.9%, improving slightly after the week prior’s 4.4% decline. This week’s data includes an adjustment for the July 4th holiday.

Adjusted purchase applications rose by 2%, though the unadjusted index was down 19% from the week before and 26% lower YOY.

The bump in purchase activity is attributed to an increase in FHA and VA loan activity.

Both loan types offer major perks like low down payments and minimum closing costs to those who qualify, making them more attractive than conventional loans in the current high-rate, high-price environment. 

The VA share saw an almost 10 bps boost, up from 11.7% to 12.6%, while the FHA share of total applications rose to 13.3% from 13%, with an average interest rate of 6.86%. The USDA share remained unchanged at 0.4%.

“Incoming economic data continue to send mixed signals about the economy, with the overall impact leaving Treasury yields higher last week as markets expect that the Federal Reserve will need to hold rates higher for longer to slow inflation,” said Joel Kan, MBA Vice President and Deputy Chief Economist.

The average interest rate for 30-year fixed loans breached the 7% mark again, rising from 6.85% to 7.07%.

This is the highest level since November 2022.

At the same time, the typical home value has exceeded $350,000, making homeownership even harder for the average American.

With the July FOMC meeting just weeks ago, markets have been pricing in a rate hike. But a July increase is not guaranteed. While almost all Federal Reserve officials support further tightening, they appear to disagree on the number and pace of new hikes.

Unsurprisingly, refinances dropped as a result, down 1% from the week prior. They remain 39% lower than the same time last year, comprising only 26.8% of total applications. In the past decade, refis averaged 58% of total activity.

The jumbo rate set a record high for MBA’s series at 7.04%.

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