Applications Sink Again To 22-Year Low

Mortgage loan application volume fell 1.2% last week to a 22-year low as the 30-year fixed rate rose to its highest point in almost a month, the Mortgage Bankers Association’s weekly survey shows.

The adjusted Market Composite Index, a measure of mortgage loan application volume, decreased by 1.2%. The adjusted purchase index fell 1% while the unadjusted purchase index dropped 2% and was 21% lower YOY.

The refinance index dropped by 3% and made up 31.1% of total applications, down 83% from the same time last year. 

ARM activity fell to 6.5% of total applications.

“Last week’s purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity. The average purchase loan size continued to trend lower, as purchase activity at the high end of the market is weakening,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. 

“Mortgage rates increased for all loan types last week… The spread between conforming fixed-rate loans and ARM loans narrowed to 84 basis points from over 100 basis points the prior week. This movement made fixed rate loans relatively more attractive than ARMs, thereby reducing the ARM share further from highs seen earlier this year.”

At the beginning of July, ARM applications jumped by 30% YOY.

“The slew of issues affecting the economy will, at some point, be sorted. But until that happens, an ARM may be the way to go for buyers who hope to finalize a deal and buy a home that they can afford,” Melissa Cohn, regional vice president of William Raveis Mortgage, told Forbes.

But ARMs have serious risks and played a role in the housing bubble that led to the 2008 crash. 

“It is very important for both lenders and borrowers to know the risks associated with adjustable-rate mortgages and to not become too cavalier about issuing or seeking out these types of loans,” Jacob Channel, senior economist at LendingTree, told Business Insider.

The FHA share of total applications rose from 12% to 12.5%. The VA share rose to 11.6% from 11.2% of total applications, and the USDA share increased to 0.7% from 0.6%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 5.45% to 5.65%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose from 5.14% to 5.28%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased from 5.38% to 5.43%, and for 5/1 ARMs jumped from 4.43% to 4.81%.