Mortgage Applications Slip As Americans Return To Cautious Buying Outlook

Mortgage applications slipped as the initial shock of falling rates wore off and buyers once again approached the market carefully.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – fell 1.5%, coming down from the week prior’s 7.4% boost.

Adjusted purchase applications dropped by 1%, while the unadjusted index fell 4% from the week before and was 18% lower YOY.

Americans appear to be losing interest in falling rates, which initially sparked some activity in the market. The 30-year fixed fell to its lowest level since June last week and hit 6.83%.

“At least as of last week, borrowers’ response to this rate move was rather tepid. VA refinance applications jumped 18% for the week, but otherwise, both refinance and purchase applications showed small declines,” said Mike Fratantoni, MBA’s SVP and Chief Economist.

Notably, recent increases in purchase applications were driven by refinances, which could help explain last week’s results. High home prices and low inventory continue to keep many potential buyers on the sidelines, constraining purchase activity.

Redfin’s latest home price index clocked gains at their smallest increase since June, but many homes are coming down from record-high prices, so they have far to fall before they could inspire a real buying boom.

Plus, though inventory improved in November, new listings remain 14% below pre-pandemic norms. In a positive turn, single-family starts soared last month, suggesting more housing stock will be available in 2024. But for the time being, competition over just a few homes will block many Americans from making a purchase.

“With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory, and lower inflation,” NAHB Chairman Alicia Huey said of new construction trends.

Refis were down 2% from the week prior and accounted for 39.7% of total applications, inching closer to their past-decade average of 58%.

The FHA share of total applications fell to 15.5% from 16.1%, with an average interest rate of 6.84%.

The VA’s share increased to 15.6% from 14.2%, while the USDA’s and ARM’s shares remained the same at 0.4% and 6.3%, respectively.