Mortgage applications slipped slightly last week as rates rose again.
The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – fell by 0.8%, a much softer decline than the week prior’s 3.1% drop.
MBA attributes recent declines to rising rates. The average interest rate for 30-year fixed loans rose from 7.09% to 7.16%, pushing homeownership farther out of reach for many Americans. This is the third straight week of increases.
Adjusted purchase applications fell by 0.2%, while the unadjusted index dipped 2% from the week before and was 26% lower YOY.
Refinances continued to be hobbled by the high rate environment, down by 2% and 35% lower than the same time last year. They currently make up 28.6% of total applications. In the past decade, refis averaged 58% of total activity.
Both purchase and refi applications saw their lowest levels since February last week.
“Government purchase applications provided a bright spot, increasing 2.4% over the week, driven by increases in both FHA and VA purchase categories. The ARM share of applications rose slightly to 7%, the highest since April 2023, as borrowers look for relief from higher fixed rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
The FHA share has seen a boost in four of the last five months as buyers seek out ways around the affordability crisis. Its share of total applications rose 0.2% to 13.8%, while the VA’s and USDA’s shares remained unchanged at 11.8% and 0.4%, respectively.
“Treasury rates were elevated again last week following mixed data on inflation and more indication of resiliency in the economy, which may pose a challenge to the Federal Reserve’s efforts to lower inflation,” Kan noted.
Treasury yields hit their highest point of 2023 this week after retail sales data came up stronger than expected, spurring fears of continued inflation.
“A good retail sales report will make the Fed less worried about recession risk and keep them focused on controlling inflation,” Bill Adams, chief economist for Comerica Bank, noted.
Adding to investors’ concerns, a Fitch analyst told CNBC the agency is considering downgrading the ratings of dozens of banks. Whether this will actually happen is closely tied to the Fed’s next interest rate move. Another rate hike could put enough pressure on bank profit margins to warrant downgrades.
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