Loans Apps Drop, Breaking Upward Trend

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – fell by 9%.

Adjusted purchase applications fell by 10%, but the unadjusted index was up 7% from the week before. Purchase applications are down by more than 40% YOY.

Refinances dipped as well, down 7% from the week prior. 

They remain 80% lower than the same time last year, comprising only 31.2% of total applications. In the past decade, refis averaged 58% of total activity.

“Mortgage rates declined for the fourth straight week and have now fallen almost 40 basis points over the past month. Treasury yields were higher on average last week, while mortgage rates decreased, which was a sign of a narrowing spread between the two,” said Joel Kan, MBA Vice President and Deputy Chief Economist.

“The spread between mortgage rates and the 10-year Treasury has been abnormally wide since early 2022. Further narrowing of that spread is expected to put downward pressure on mortgage rates in the coming months. Overall application activity declined last week despite lower rates, which is an indication of the still volatile time of the year for housing activity. Purchase activity is expected to pick up as the spring homebuying season gets underway, bolstered by lower rates and moderating home-price growth. Both trends will help some buyers regain purchasing power.”

Pending home sales have been rising since December, and only fell 26% YOY during the four weeks ending January 22, the smallest drop in more than three months.

Nervous sellers are now open to negotiations after years of having the upper hand. Rate buydowns are having a moment as sellers and buyers figure out a path forward in a high-rate, high-appreciation environment.

“Sellers don’t want their houses to sit on the market,” Bud Kawa, a Detroit-based realtor at Brick and Stone Real Estate, told USA Today. “They are willing to help out buyers more than they were in the last year.”

Other key findings include:

The ARM share of activity rose from 6.6% to 6.7% of all applications.

The FHA share of total applications rose from 11.9% to 12%, with an average interest rate of 6.18%.

The VA share fell from 13% to 11.9%, and the USDA share remained unchanged at 0.6%.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances rose from 5.92% to 5.99%, and for 5/1 ARMs dropped from 5.44% to 5.38%.

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