Loan Apps Hit Lowest Point Since 1997

Mortgage loan application volume has now seen four months of decline and fallen to its lowest level since 1997, according to the Mortgage Bankers Association’s weekly survey.

Interest rates rose to 6.94%, their highest point since 2002.

The adjusted Market Composite Index, a measure of mortgage loan application volume, dropped by 4.5%.

The adjusted purchase index fell 4%, while the unadjusted purchase index decreased 3% and was 38% lower YOY.

The refinance index dropped by 7% and was 86% lower than at the same time last year. Refis made up 28.3% of total applications.

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market. Residential housing activity ranging from housing starts to home sales have been on downward trends coinciding with the rise in rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

“ARM loans continue to remain a viable option for borrowers who are still trying to find ways to reduce their monthly payments,” he added.

The ARM share of activity rose to 12.8% of total applications, their highest share since March 2008.

Even as home prices are cooling, they remain 44% above pre-pandemic levels.

The combination of prices and ever-increasing interest rates is putting the squeeze on home shoppers, who feel their buying power falling by the day.

Mark Fleming, chief economist at First American, pointed out that prospective buyers can use ARMs to “regain some of that lost house-buying power.”

Millennials, in particular, will create a “demographic tailwind for the housing market” as they continue to age into their prime homebuying years.

John Walsh, chairman of Milford, Conn.-based Total Mortgage Services, told the Wall Street Journal that ARMs are popular with millennials because they’re “more mobile” than previous cohorts.

“They’re not going to work at GE for the next 30 years. A lot of them will move to accelerate their career path, so they’re not going to stay in the house as long.”

On-the-go Millennials opted for ARMs quite a bit last year, as they can avoid the pitfalls by selling their home before their rate increases.

The FHA share of total applications rose from 13.5% to 13.6%.

The VA share dipped from 10.9% to 10.7%, while the USDA share remained unchanged at 0.5%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 6.81% to 6.94%.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose from 6.25% to 6.31%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased from 6.61% to 6.63%, and for 5/1 ARMs rose from 5.56% to 5.65%.

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