Loan Apps Plummet As Recession Worries Grow

Mortgage loan application volume fell by 5.4% last week, the Mortgage Bankers Association’s (MBA) weekly survey shows.

The adjusted Market Composite Index, a measure of mortgage loan application volume, decreased by 5.4%. The adjusted purchase index dropped 4%, while the unadjusted purchase index increased by 7% and was 17% lower YOY.

The refinance index fell by 8% and made up 29.6% of total applications, down 78% from the same time last year.

ARM activity fell to 9.5% of total applications. 

“Mortgage rates decreased for the second week in a row, as growing concerns over an economic slowdown and increased recessionary risks kept Treasury yields lower. Mortgage rates have increased sharply thus far in 2022 but have fallen 24 basis points over the past two weeks, with the 30-year fixed rate at 5.74%,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. 

“Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed. Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance.”

Recession worries are now front and center as inflation continues to rage. Strategists at Goldman Sachs recently upgraded their recession probability to 30% from 15%.

“We now see recession risk as higher and more front-loaded,” Goldman Sachs Chief Economist Jan Hatzius wrote in a new note to clients. “The main reasons are that our baseline growth path is now lower and that we are increasingly concerned that the Fed will feel compelled to respond forcefully to high headline inflation and consumer inflation expectations if energy prices rise further, even if activity slows sharply.”

The FHA share of total applications remained unchanged at 12%. The VA share of total applications fell to 11.1% from 11.2%, while the USDA remained the same at 0.6%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell to 5.74% from 5.84%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances fell to 5.28% from 5.42%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased from 5.62% to 5.60%, and for 5/1 ARMs fell from 4.64% to 4.62%.

The results include a holiday adjustment to account for early closings the Friday before Independence Day.