Loan Volume Up As Rates Rise To 6.25%

Mortgage loan application volume increased by 3.8% last week, breaking a multi-week pattern of steep declines, despite rates rising to their highest point since October 2008.

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index, a measure of mortgage loan application volume, rose by 3.8%. The results include an adjustment for Labor Day.

The adjusted purchase index rose 1%, while the unadjusted purchase index increased 11% and was 30% lower YOY.

The refinance index rosed by 10% and was 83% lower than the same time last year. Refis made up 32.5% of total applications.

“Treasury yields continued to climb higher last week in anticipation of the Federal Reserve’s September meeting, where it is expected that they will announce – in their efforts to slow inflation – another sizable short-term rate hike,” said Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. 

Analysts expect a 75-point rate increase from the Federal Open Markets Committee, which is meeting this week. This would be the third straight 75-point hike since June, bringing the Fed funds rate to the highest level since 2008.

“As with the swings in rates and other uncertainties around the housing market and broader economy, mortgage applications increased for the first time in six weeks but remained well below last year’s levels, with purchase applications 30% lower and refinance activity down 83%. The weekly gain in applications, despite higher rates, underscores the overall volatility right now as well as Labor Day-adjusted results the prior week,” Kan added.

As rates keep climbing, market volatility may remain for the foreseeable future. Fannie Mae predicts that economic growth will resume in the last half of 2022, but will tip into recession in 2023.

Some industry experts say the housing market is already in recession, however.

“Activity tracks mortgage applications with a lag, and the early September numbers are grim, even before the full hit from the rebound in mortgage rates in recent weeks works through,” Pantheon Macroeconomics chief economist Ian Shepherdson said in a note to clients.

“In short, the housing market is in a deep recession, which is already hammering homebuilders and will soon depress housing-related retail sales.”

The FHA share of total applications fell from 13.4% to 13.3%. The VA share dropped to 10.9% from 11.3% of total applications, and the USDA share fell from 0.7% to 0.6%.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased from 6.01% to 6.25%.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose from 5.56% to 5.79%.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA increased from 5.71% to 5.85%, and for 5/1 ARMs rose from 4.83% to 5.14%.

ARM activity rose to 9.1% of total applications.

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