Mortgage volume inches up modestly for the week

Mortgage activity increased slightly last week, despite refinances diminishing amid rising interest rates.

The Mortgage Bankers Association’s Market Composite Index, which tracks loan applications based on a survey of MBA members, ticked up a seasonally adjusted 0.2% for the week ending Oct. 8, reversing course after posting a large drop in the previous reporting period. The unadjusted index showed volumes rising by 0.4% week over week, while the seasonally adjusted index came in 14% lower from the same time period one year ago.

“An increase in home purchase applications offset a slight decline in refinances,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a press statement. “The increase in purchase applications was welcome news, but was primarily driven by a 2% gain in conventional purchase applications, which kept the average loan size elevated.”

Both the seasonally adjusted and unadjusted Purchase Index increased by 2% from the previous week, but seasonally adjusted volume was 10% below levels in the same week of 2020.

While purchases rose, refinances fell 1% from a week earlier, helping drive down the composite index. Refinances came in 16% lower from numbers recorded in the same weekly period last year, according to the MBA. An 8-basis-point weekly increase in the average interest rate for Federal Housing Administration loans led to dampened enthusiasm for government-backed refinances, which fell by 3%, Kan said. “We continue to expect weakening refinance activity as rates move higher and borrowers see less of a rate incentive.”

In the last month, refinances fell by 11% as interest rates went up. Meanwhile, the share of refinances relative to loan activity also decreased for the second consecutive weekly period, accounting for 63.9% of mortgage volume. A week earlier, they made up 64.5% of applications.

Adjustable-rate mortgages took a 3.4% share of the total volume, unchanged from the prior week.

As interest rates trended upward, the share of federally backed applications dropped across the board, with FHA-backed loans slipping to a 10.2% share of volume from 10.5% the prior week. Veterans Affairs-backed loans also accounted for 10.2% of mortgages, down from 10.3% a week earlier, and the percentage of loans taken through U.S. Department of Agriculture programs fell to 0.4% from 0.5%.

Overall average loan size increased slightly on a week-over-week basis, as conventional applications outpaced government-sponsored activity. The average amount of all new mortgage loans climbed 0.7% to $341,400 from $338,900. The mean size of refinance loans also jumped to $303,100 from $299,400, a 1.2% uptick. But the average amount on new purchase applications declined slightly by 0.3% to $409,300 from $410,500. Home prices remain high, as demand continues to fall short of available inventory.

Interest rates up in all categories
The average contract interest rate on a 30-year fixed mortgage with conforming loan balances of $548,250 or less rose four basis points to 3.18% from 3.14% the prior week. The 30-year conforming rate has risen 15 basis points over the last month.

The 30-year fixed rate for jumbo mortgages greater than $548,250 posted a two-basis-point rise, now standing at 3.22% compared to 3.2% a week earlier.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA jumped to 3.2% from 3.12% week over week, increasing eight basis points.

The average contract interest rate for 15-year fixed-rate mortgages ticked up to 2.48%, up from 2.45% in the last weekly period.

The 5/1 adjustable-rate mortgage also spiked, jumping 54 basis points to 3.08% from 2.54% the previous week.