Mortgage Applications Drop As Rates Rise

Mortgage applications dropped last week as rates reversed course, breaking a multi-week streak of easing unaffordability.

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index — a measure of mortgage loan application volume — fell by 0.7% last week, turning from the week prior’s 5.4% bump.

This is the first turnaround in five weeks of continuous increases. Rates rose from 6.67% to 6.75%, ending a three-week streak of declines.

Adjusted purchase applications were up by 1%, while the unadjusted index was down 2% and 6% higher year-over-year.

“Conventional and VA purchase applications drove this week’s increase in purchase activity on a weekly and annual basis. Buyers remained active in the purchase market, helped by gradually improving inventory conditions and a more positive outlook on the economy and job market,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. 

The consumer price index showed an annual inflation rate of 2.7% and a 0.3% increase from October, matching analyst expectations.

Refi applications were up 41% YOY but down 3% on the week. Their share of mortgage activity rose to 46.7% of total applications, edging closer to their past-decade average of 58% after tanking post-Covid.

The Central Bank is expected to cut the benchmark rate again this week, but it’s unclear how that will translate to mortgage lending.

“Past rate cuts have not resulted in falling mortgage rates,” Ahmed Rahman, associate professor of economics at Lehigh University, told The Mortgage Note.

“Fed actions, which impact the federal funds rate, more directly impact short-term rates. Longer-term rates such as those for 30-year fixed mortgages are shaped more by housing market considerations, and by longer-term factors such as the size of the federal debt. Low stocks of existing homes and high debt overhang keep mortgage rates elevated.”