Purchase applications drop to lowest level in over a year

Low interest rates led to a spike in refinances, helping drive up overall mortgage activity last week as purchase applications reached their lowest level in over a year, according to the latest data from the Mortgage Bankers Association.

The MBA’s Market Composite Index, which tracks mortgage applications through a survey of MBA members, increased 5.7% on a seasonally adjusted basis from the previous week for the period ending June 23. The unadjusted index came in 6% higher week over week. Compared to the same period in 2020, the seasonally adjusted application volume was 12.4% lower.

The Purchase Index fell a seasonally adjusted 2% — or 1% on an unadjusted basis — hitting its lowest point since May 2020. Purchases have declined on an annual basis for the past three months.

“Potential buyers continue to be put off by extremely high home prices and increased competition,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. According to the Federal Housing Finance Agency, prices in May were 18% higher year over year.

Meanwhile, the Refinance Index rose 9%, as homeowners continued to refinance at elevated levels this year due to low interest rates. A rise in new U.S. coronavirus cases planted doubts among investors about the pace of the current economic recovery and pushed Treasury yields downward, causing mortgage rates to slide as well, Kan said.

“Refinances for conventional loans increased over 11%. With over 95% of refinance applications for fixed-rate mortgages, borrowers are looking to secure a lower rate for the life of their loan,” Kan said in a press statement.

Both refinance and purchase volumes clocked in lower than their levels during the same week a year ago. The Refinance Index registered a 10% year-over-year decrease, while the unadjusted Purchase Index was 18% lower.

Refinances accounted for 67.2% of total mortgage applications — their highest share since February — reflecting the dropoff in home-buyer interest. That number was up from 64.9% the prior week.

Adjustable-rate mortgages increased to 3.6% of application volume, compared to 3.3% one week earlier.

Loan-size averages increase
Average mortgage sizes grew among both refinance and purchase applications. Refinance loans averaged $335,000, jumping up 7.2% from the previous week’s average of $312,600. Purchase sizes also increased, albeit at a much smaller 0.01%, inching up to an average of $404,200 from $401,300. Overall, the average size of all new mortgage applications climbed to $357,700, up 4% from $343,800 week over week.

Government-backed applications accounted for a lower percentage of volume compared to the previous week. The share of Federal Housing Administration-sponsored loans dropped to 9.1% from 9.6%, while Veterans Administration-backed applications fell to 9.8% from 10.5% a week earlier. The share of mortgages from U.S. Department of Agriculture programs was unchanged at 0.5%.

30- and 15-year fixed rates drop in tandem
The 30-year mortgage rate decreased to a level not seen since February, while the 15-year fell to its lowest recorded rate ever.

• The average contract interest rate of 30-year fixed-rate mortgages with conforming loan balances of $548,250 or less dropped 10 basis points to 3.01%, down from 3.11% a week earlier.
• The average contract interest rate of 30-year fixed-rate jumbo loans with balances greater than $548,250 edged down to 3.11%, compared with 3.13% the prior week. 
• The contract interest rate of 30-year fixed-rate mortgages backed by the FHA averaged 3.03%, falling from 3.08% the previous week.
• The average contract interest rate of 15-year fixed-rate mortgages dropped to its lowest level in the history of the MBA survey, coming in at 2.36%, 10 basis points lower than the prior week’s 2.46%.
• While fixed-rate mortgages all posted decreases, the 5/1 adjustable-rate mortgage average moved in the other direction, rising to 2.81%, up from 2.74% a week earlier.