Mortgage app volumes plunge after rate surge

The recent upturn in interest rates is leaving a mark on home lending as application volumes fell for a second consecutive week, marking the largest decline in a year, according to the Mortgage Bankers Association.

The MBA's seasonally adjusted Market Composite Index, a measure of application activity based on surveys of the trade group's members, plunged 10.6% week over week, the biggest downward move since mid February last year. The latest drop comes following a revised 3.3% decline from the previous survey period. Compared to the same seven-day period in 2023, volumes came in 7.9% lower. 

The latest dip in borrowing activity coincides with the steady upward climb in mortgage rates, reversing a sizable chunk of the early winter decreases that resulted in elevated loan volumes for much of January. The average conforming rate among MBA members has surged 28 basis points over three weeks to climb back up above 7%. 

"Mortgage applications dropped as a result with a larger decline in refinance applications," said Mike Fratantoni, MBA senior vice president and chief economist, in a press release. 

The rate for 30-year loans with balances below the conforming amount of $776,550 in most markets accelerated 19 basis points to average 7.06%, up from 6.87% seven days earlier. Borrower points to buy down the rate inched up to 0.66 from 0.65 for 80% loan-to-value ratio applications.

The latest rate movements temporarily dashed hopes that housing inventory — and buying activity — would be able to sustain the growth shown earlier this winter, Fratantoni added.

"Potential home buyers are quite sensitive to these rate changes, as affordability is strained with both higher rates and higher home values in this supply-constrained market," he said. 

Last week, the seasonally adjusted Purchase Index tumbled 10.1% from the prior survey period, which saw a revised 3.2% fall. Compared to one year earlier, purchase volumes were also 13% lower. 

Recent rate movements are also contributing to a decline of new for-sale listings, according to a report from Redfin last week. The number of new homes listed on the market fell a seasonally adjusted 1.2% in January, the first drop since last June, the real estate brokerage said. Like the MBA, Redfin agents said interest rate levels have stymied market activity. 

"A lot of my customers are paying close attention to what the Federal Reserve says. Buyers and sellers came off the sidelines in December when the Fed signaled it would lower interest rates," said Hal Bennett, a Redfin agent in Bellevue, Washington, in a press release.

"But now some are getting cold feet because the Fed indicated that rate cuts may come later than expected." 

Meanwhile, the MBA's Refinance Index saw an even larger drop of 11.4% in the latest survey, with volumes flattening on a year-over-year basis. The refinance share relative to total activity also pulled back to 32.6% from 34% seven days earlier. 

But adjustable-rate mortgages garnered a larger share of volume, rising to 7.4% of volume compared to 7% a week earlier. As fixed rates rise, interest in adjustable-rate options typically rise in tandem, as borrowers look for ways to lower initial monthly payments. 

The Government Index slowed a seasonally adjusted 16.8%, declining even more than overall numbers. The share of federally sponsored activity, likewise, contracted. 

Federal Housing Administration-backed applications accounted for 13.2% of activity, slipping from 13.5% one week prior. Loans guaranteed by the Department of Veterans Affairs shrank to a 12.1% slice from 13.3%. But U.S. Department of Agriculture-sponsored mortgages managed to squeeze out a larger share of 0.5%, increasing from 0.4% in the previous survey.

Similar to the conforming mortgage, average rates increased across all other loan categories tracked by the MBA, with the 30-year jumbo average jumping to 7.16% from 7% the previous week. Points increased to 0.45 from 0.39 for 80% LTV-ratio loans.

The average contract rate of 30-year FHA-backed mortgages surged 23 basis points to land at 6.91%. Seven days earlier, the FHA average sat at 6.68%. Borrowers typically used 1.03 worth of points, up from 0.89 in the prior survey.

The contract fixed rate of a 15-year loan saw a smaller rise of 8 basis points to average 6.61% from 6.53% in the previous survey. Points decreased to 0.77 from 0.94.

The 5/1 adjustable-rate mortgage average increased to 6.37% from 6.3% on a weekly basis. Borrowers took 0.71 in points compared to 0.60 a week earlier. The loans start with a fixed rate for five years before becoming variable.