Purchase Demand Is Improving But Refis Drive Applications Down

Mortgage applications continued to sink despite relatively strong purchase demand as rates stagnated and refis dried up.

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index — a measure of mortgage loan application volume — fell by 2%, adding to the week prior’s 6.2% drop.

Adjusted purchase applications were up 1%, while the unadjusted index increased 1% and was 7% higher year-over-year. Homebuyer demand accelerated to its strongest pace in two months.

“Last week’s purchase activity was driven primarily by a 6% increase in FHA applications, as the combination of loosening housing inventory and slowly declining mortgage rates have presented this segment of buyers with more opportunities,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

Kan noted that VA applications saw gains as well, but the combined strength wasn’t enough to combat dwindling refi action.

Refinances dropped by 5% on the week, driving totals down to their lowest level in a month, though they are still 63% stronger year-over-year. They accounted for 40.4% of all applications.

Rates held steady, down just 0.1% to 6.71%, which Kan attributed to ongoing trade policy uncertainty and the FOMC’s decision to hold rates last week.

Wall Street still expects the Central Bank to slash rates at some point this year. The yield on the benchmark 10-year Treasury sank earlier this week.

“We still anticipate slight easing by the central bank later this year, which may help mortgage rates to come down,” Realtor.com Senior Economist Joel Berner wrote in a note.

Housing inventory, which has been on the rise recently, is likely to be affected as builders contend with higher costs to build homes.

Homebuilder confidence recently dipped to a seven-month low.