According to recent information from the Mortgage Bankers Association (MBA), fewer persons attempted to obtain mortgages last week.
When the data was seasonally adjusted, the trade group’s Market Composite Index—a measure of the number of home loan applications—was down 8.8% from one week earlier; when the data wasn’t seasonally adjusted, it was down 8%.
The seasonally adjusted Purchase Index decreased by 10% from the prior week, while the unadjusted index decreased by 9%. The unadjusted index was likewise 36% lower than it was during the same week in 2016.
The Refinance Index fell by 6% from the previous week and by 56% from the same week a year prior. However, the proportion of mortgage applications for refinancing increased from 27% the week before to 27.6% this week.
In federal programs, the FHA’s share of all applications went up from 12.3% to 12.7%, the VA’s share went down from 12.8% to 11.7%, and the USDA’s share of all applications stayed the same at 0.5%.
“Last week’s rise in mortgage rates caused a drop in applications,” said Joel Kan, Vice President and Deputy Chief Economist at the MBA. “Because more first-time homebuyers are on the market, rate changes are still being felt more. In addition, the 30-year fixed rate went up 13 basis points to 6.43 percent, which made fewer people want to buy.
Kan said, “Affordability problems still exist, and there aren’t many homes for sale in many markets across the country, so buyers are still being careful about when they buy.” The 10% drop in FHA purchase applications and the rise in the average size of a purchase loan to its highest level in a month are also signs that first-time buyers have pulled back. Last week, the difference between the jumbo and conforming 30-year fixed rates grew by 15 basis points. However, this was a much smaller difference than in the past year. We expect this trend to continue as long as banks are less willing to hold jumbo loans.”
Fewer people want to get a mortgage
The weekly changes in mortgage rates are getting more and more important to homebuyers today. Even though home prices are going down, they are still too high for many people to afford, especially as more first-time buyers enter the market.
Last week, the contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $726,200 or less went up from 6.30% to 6.43%. The number of points for loans with a 20% down payment also went up, from 0.55 to 0.63 (including the origination fee).
The seasonally adjusted index from the Mortgage Bankers Association shows that this is why mortgage applications to buy a home dropped 10% from the week before. Moreover, the number of buyers was 36% less than in the same week last year, when the average 30-year fixed-rate mortgage was 5.20 percent.
But buyers with more money may need help getting credit as well. Banks used to offer better rates on jumbo loans than on conforming loans, but the difference between them is much smaller now than last year. But, again, this concerns the recent failures of some regional banks, which have sent shockwaves through the industry.
The number of applications to refinance a home loan fell 6% from the week before and 56% from a year ago. However, 27.6% of all mortgage applications were for refinancing this week, up from 27.0% the week before.
Another rate survey from Mortgage News Daily shows that mortgage rates went up a lot to start the week. Still, rates have been going back and forth between 6% and 7% for a while. Potential buyers may have gotten used to higher rates by now, but home prices haven’t gone down enough to make homes affordable again.
What is keeping buyers away?
Many people thought there would be a credit crunch because of high interest rates and bank failures, but a recent report said that wasn’t the case.
A recent First American report says that the tightening of credit after these bank failures have been small and nowhere near as bad as it was at the start of the COVID-19 pandemic. Lenders tend to tighten their requirements when there is a higher chance of forbearance or delinquency.
First American Chief Economist Mark Fleming said that the mortgage credit tightening caused by bank failures has been better because banks usually don’t keep these loans on their balance sheets. As a result, lenders don’t have to pay for standard mortgage loans out of their deposits or worry about credit risks.
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But lending rules have become stricter for mortgages on banks’ balance sheets, such as non-conforming and jumbo loans.
Reference: MBA: Mortgage Application Activity Down 8.8%
