Mortgage loan application volume fell 3.7% last week, continuing a downward spiral as mortgage rates hit their highest point since mid-July, the Mortgage Bankers Association’s weekly survey shows.
The adjusted Market Composite Index, a measure of mortgage loan application volume, decreased by 3.7%. The adjusted purchase index fell 2%, while the unadjusted purchase index dropped 4% and was 23% lower YOY.
The refinance index dropped by 8% and made up 30.3% of total applications, down 83% from the same time last year.
“Mortgage rates and Treasury yields rose last week as Federal Reserve officials indicated that short-term rates would stay higher for longer. Mortgage rates have been volatile over the past month, bouncing between 5.4% and 5.8%,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting.
“Application volume dropped and remained at a multi-decade low last week, led by an 8% decline in refinance applications, which now make up only 30% of all applications. Purchase applications have declined in eight of the last nine weeks, as demand continues to shrink due to higher rates and a weaker economic outlook. However, rising inventories and slower home-price growth could potentially bring some buyers back into the market later this year.”
The FHA share of total applications rose from 12.5% to 13%. The VA share fell to 11.1% from 11.6% of total applications, and the USDA share decreased to 0.6% from 0.7%.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 5.65% to 5.80%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose from 5.28% to 5.32%.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased from 5.43% to 5.57%, and for 5/1 ARMs fell from 4.81% to 4.78%.
ARM activity rose to 8.5% of total applications.
As fixed-rates rise, ARMs continue to attract interest despite their history as part of the 2008 housing crash.
“I’m getting a lot more questions and inquiries about ARMs,” Brian Rugg, chief credit officer at LoanDepot, told the New York Times. “It’s a very strong tool to use, from an affordability standpoint.”
While lenders now have stricter standards, they still carry risks. Hourly wage earners, for example, may not be financially prepared to take on the risk of higher rates down the road.
“Be aware, be educated before you jump in,” said Linda McCoy, president of the National Association of Mortgage Brokers.