Mortgage applications increased again last week as rates cooled, though constrained inventory kept purchase activity down.
The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – increased by 1.1%, improving slightly after the week prior’s 0.9% bump.
Adjusted purchase applications fell by 1%, but the unadjusted index was up 24% from the week before and 21% lower YOY.
Application activity benefited from a slight reprieve in rates. The average interest rate for 30-year fixed loans finally retreated, falling from 7.07% to 6.87%.
Refinances saw a boost as rates cooled a bit, up 7% from the week prior. They remain 32% lower than the same time last year, comprising only 28.4% of total applications. In the past decade, refis averaged 58% of total activity.
Limited inventory and worsening affordability put a dent in purchase applications in particular.
Even buyers who want to buy a house while rates are under 7% can’t if there are no homes on the market.
“Despite last week’s lower rates, purchase applications decreased, as home purchase activity is still being held back by low housing supply and rates that are still much higher than a year ago,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
The Fed’s fight against inflation is finally showing some results, with this month producing a slew of positive data. But Fannie Mae’s Economic and Strategic Research Group notes that rates won’t see serious change until the Fed commits to ending hikes.
“[W]e expect the Federal Reserve will stick to ‘higher-for-longer’ policy after one or two more quarter-point increases, until they conclude that the core inflation rate is sustainably at their 2-percent target. Putting aside any temporary volatility, we expect mortgage rates to stay higher as well. While spreads have come in a bit recently, they remain well above longer-term levels and that means rates for consumers will likely stay elevated,” the group recently wrote.
The VA share dipped, falling from 12.6% to 12.1%, while the FHA share of total applications rose to 13.6% from 13.3%, with an average interest rate of 6.77%. FHA loans tend to do well when affordability is low thanks to their low down payment requirements and minimum closing costs.
The USDA share rose to 0.5% from 0.4%.
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