Mortgage Apps Reverse Course, Fall For First Time In A Month

Mortgage applications reversed after a month of increases despite declining rates, a rocky start to the typically robust spring buying season.

The Mortgage Bankers Association’s weekly survey says the adjusted Market Composite Index – a measure of mortgage loan application volume – decreased by 4.1%.

Adjusted purchase applications dropped by 4%, while the unadjusted index was down 3% from the week before and 35% lower YOY.

Mortgage rates fell slightly, with the average interest rate for 30-year fixed loans down from 6.45% to 6.40%. This is the lowest level in more than a month.

Jumbo rates increased, however, from 6.27% to 6.36%.

“While we have seen relative weakness at the high end of the housing market in recent months, the divergence in rates suggests that banks may be tightening credit in response to recent challenges, preserving balance sheet capacity as deposit balances have declined. In recent years, most jumbo loans have been kept on depository balance sheets,” said Mike Fratantoni, MBA’s SVP and Chief Economist.

Fratantoni said that entry-level applications for both FHA and VA loans fell.

“We do expect strong demand from first-time homebuyers over the next several years given the large number of millennials hitting peak first-time homebuyer age, but affordability remains a real challenge in this environment,” he said.

First-time buyers made up 26% of home purchases in 2022, down significantly from 34% in 2021. A high-rate environment, along with soaring home prices and broader economic concerns, have pushed many out of the market. As a result, baby boomers are now the largest cohort of buyers at 39%.

“Baby boomers have the upper hand in the homebuying market,” said Dr. Jessica Lautz, NAR deputy chief economist and vice president of research. “The majority of them are repeat buyers who have housing equity to propel them into their dream home – be it a place to enjoy retirement or a home near friends and family.”

Among Millennials who intended to buy a home this year, 92% said inflation has impacted their decision-making, causing them to either delay a purchase or spend more than they originally intended.

Refinances were down 5% from the week prior and are 59% lower than the same time last year, comprising only 28.6% of total applications.

Rates are still two percentage points higher than at the same time last year, making refinancing unattractive for many borrowers who locked in rates before increases. In the past decade, refis averaged 58% of total activity.

Other key findings include:

-The FHA share of total applications fell from 12.3% to 12% with an average interest rate of 6.33%.

-The VA share dropped to 11.0% from 11.6%, and the USDA share increased to 0.6% from 0.5%.

–ARMs accounted for 7.2% of applications, and the rates for these loans fell from 5.62% to 5.61%.

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