Mortgage loan application volume rose in the first week of 2023, boosted by a flurry of refinancing, according to the Mortgage Bankers Association’s weekly survey.
The adjusted Market Composite Index, a measure of mortgage loan application volume, increased by 1.2%.
Refinances saw the most improvement, up 5% from the week prior, as homeowners took advantage of the market’s reaction to indicators of a slowing economy.
Data released last week showed the U.S. economy created fewer jobs in December, and hourly wages grew at the slowest annual pace in 16 months. Wage growth has fallen by a full percentage point since Q2 2022.
As a result, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances fell from 6.58% to 6.42%.
Refis remain 86% lower than the same time last year, however, comprising only 30.7% of total applications. In the past decade, refis averaged 58% of total activity.
“There was an increase in refinance activity as a result of the 16-basis-point decline in rates, as both conventional and government refinance applications increased. However, the overall pace of refinance applications was lower than November and December’s 2022 averages, and over 80% lower than a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
Purchases did not benefit from the dip, however, down 1% from the previous week. The purchase index is now at its lowest point since 2014.
Buyers are seeing prices fall in major markets but may be waiting for further declines before committing to an interest rate above 6%.
But inventory remains low, which could keep prices elevated throughout the year.
Other key findings include:
The ARM share of activity remained unchanged at 7.3% of applications.
The FHA share of total applications dipped to 13.4% from 14%, with an average interest rate of 6.39%.
The VA share fell to 13.2% from 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 decreased to 5.97% from 6.14%, and for 5/1 ARMs fell from 5.58% to 5.43%.