Mortgage Applications Slip In Last Two Weeks Of 2023

The last two weeks of 2023 brought a slump in mortgage applications as buyers continue to grapple with affordability.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – fell 9.4% from the two weeks prior. The data includes adjustments for the holidays.

Adjusted purchase applications dropped by 5%, while the unadjusted index fell 34% and was 12% lower YOY.

Americans appear to be losing interest in falling rates, which initially sparked some activity in the market. The 30-year fixed ended the year at 6.76%, ticking up very slightly from the week prior but still down more than a full point from its October peak.

MBA Vice President and Deputy Chief Economist Joel Kan noted that potential buyers haven’t rushed to the market to lock in cooling rates.

“The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response, with the overall level of purchase activity 12% lower than a year ago,” he said.

He noted that refinances have seen some improvement since rates began falling, however, clocking in historically low but 15% higher YOY.

Refis were down 18% after holiday adjustment and accounted for 36.3% of total applications. In the past decade they averaged 58%.

Homeowners may be more incentivized to refinance near-8% rates than buyers to purchase a new home in the current high-price, high-rate environment.

America’s persistent lack of inventory keeps buyers in constant competition for reasonably priced homes. Sellers locked in by super-low interest rates are also facing stock shortages: even those who may be willing to give up a 3% rate may be trapped by lack of options.

“The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months to come,” Kan added.

Housing starts surged to an unexpected 6-month high in November, and permits for new single-family construction also increased, signaling a strong start to the new year for homebuilders.

The FHA share of total applications fell to 14.5% from 15%, with an average interest rate of 6.51%.

The VA’s share decreased to 14.6% from 17.3%, while the USDA’s rose to 0.5%.