Interest Rates Rose Last Week, Pushing Applications Down

Interest rates increased last week for the first time in more than a month, pushing mortgage applications down.

The Mortgage Bankers Association’s weekly survey says the adjusted Market Composite Index – a measure of mortgage loan application volume – decreased by 8.8%, outstripping last week’s 5.3% increase.

Adjusted purchase applications fell by 10%, while the unadjusted index was down 9% from the week before and 36% lower YOY.

The average interest rate for 30-year fixed loans jumped from 6.30% to 6.43% after ticking down consistently since bank failures last month.

MBA Vice President and Deputy Chief Economist Joel Kan noted that an influx of first-time buyers in the market adds to rate sensitivity, as these buyers lack the flexibility of high equity or extra cash.

“The 10% drop in FHA purchase applications, and the increase in the average purchase loan size to its highest level in a month, are other indications that first-time buyers have pulled back,” he said.

He also noted that the spread between the jumbo and the conforming 30-year fixed rate remained tighter than it has been over the last year despite widening slightly last week. The average interest rate for jumbo loans increased by 0.2% to 6.28%.

“As banks reduce their willingness to hold jumbo loans, we expect this narrowing trend to continue,” Kan said.

Silicon Valley Bank’s collapse sent a shock wave through the economy, leading banks to move more carefully in its wake. Credit availability slipped in March as a result. Jumbo and non-conforming loans are the most impacted by this tightening.

“When banking gets stressed, credit expansion gets tighter and tighter. Non-QM and jumbo loans with certain banks are harder to get from borrowers, as we saw during the first few months of the Covid-19 pandemic too. Non-QM and jumbo loans got impacted, but traditional conventional loans were still flowing,” said Logan Mohtashami, lead analyst at HousingWire.

Refinances also declined, down 6% from the week prior. They remain 56% lower than the same time last year, comprising only 27.6% of total applications. In the past decade, refis averaged 58% of total activity.

Other key findings include:

-The FHA share of total applications rose from 12.3% to 12.7% with an average interest rate of 6.33%.

-The VA share dropped to 11.7% from 12.8%, and the USDA share remained unchanged at 0.5%.

–ARMs accounted for 6.3% of applications, and the rates for these loans rose from 5.51% to 5.56%