Purchase Apps, Refis See Boost As Rates Retreat

Both purchase applications and refis saw increases as rates fell for a fifth consecutive week.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – rose by 7.4%.

Adjusted purchase applications increased by 3%, while the unadjusted index was up 4% from the week before and was 37% lower YOY.

Refinances saw a big upswing, rising 18% from the week prior. But they remain 75% lower than the same time last year, comprising only 33.9% of total applications.

In the past decade, refis averaged 58% of total activity.

“Both purchase and refinance applications increased last week and have shown gains in three of the past four weeks because of lower rates. Overall applications remained 58% lower than a year ago and rates are still significantly higher, however, this week’s results are a step in the right direction,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

“The average loan size on a purchase application increased to $428,500 – the largest average since May 2022. This increase is a sign that the recent upward trend in purchase activity remains skewed toward larger loan sizes and less first-time homebuyer activity, as entry level housing remains undersupplied, and buyers struggle with affordability in many markets.”

Home price appreciation is cooling some but remains a problem for buyers on a budget.

Home prices nationwide saw a 0.4% dip month-over-month in December 2022, but were up 6.2% YOY.

Prices are trending in the right direction, however, as the market begins to correct. Only nine states saw double-digit price gains in December, compared to 48 states in April 2022.

“Some exurban regions that became increasingly popular during the COVID-19 pandemic saw prices jump and affordability erode at the time, but these areas are now seeing major corrections. And while price deceleration will likely persist into the spring of 2023, when the market will probably see some year-over-year declines, the recent decrease in mortgage rates has stimulated buyer demand and could result in a more optimistic homebuying season than many expected,” Selma Hepp, Chief Economist at CoreLogic, said.

Other key findings include:

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

The FHA share of total applications dropped to 11.9% from 12%, with an average interest rate of 6.14%.

The VA share increased from 11.9% to 13.4%, and the USDA share remained unchanged at 0.6%.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances dipped to 5.96% from 5.99%, and for 5/1 ARMs rose to 5.56% from 5.38%.

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