It’s official: the mortgage industry has entered a purchase era, with refinance applications declining below 50% of the mix for the first time since June 2019, the Mortgage Bankers Association (MBA) reported on Wednesday.
Mortgage applications decreased 0.7% for the week ending Feb. 25, as mortgage rates reached 4.15%. Compared to the same week one year ago, applications dropped 41.7%.
The MBA‘s seasonally adjusted refi index increased 0.5% from the previous week, but fell 56.2% year-over-year. Meanwhile, the purchase index dropped 1.7% in one week and 8.6% in one year.
The survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications.
According to Joel Kan, MBA’s associate vice president of economic and industry forecasting, mortgage rates last week reached multi-year highs, “putting a damper on applications activity.”
The trade group estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) increased to 4.15% from 4.06% the week prior. For jumbo mortgage loans (greater than $647,200), rates rose to 3.88% from 3.84% the week prior.
Agency rates are on the rise and refinance volume is down. Originators who had their best year in 2021 will have to utilize something else to make up for this loss in 2022 and non-QM can be the answer.
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“Refinance share of applications dipped below 50%. Although there was an increase in government refinance applications, higher rates continue to push potential refinance borrowers out of the market,” Kan said in a statement.
The survey showed that the refi share of mortgage activity decreased to 49.9% of total applications last week, from 50.1% the previous week. VA apps rose to 10.2% from 9.9% in the same period.
The FHA share of total applications decreased to 8.6% from 8.7% the prior week. Meanwhile, the adjustable-rate mortgage share of activity increased from 5.1% to 5.3% and the USDA held steady at 0.4%.
Regarding purchase applications, Kan said the activity remained weak amid a strong home-price growth and low inventory. However, a greater share of activity is occurring at the higher end of the market.
Kan added that MBA will continue to assess the potential impact on mortgage demand from the sharp drop in interest rates this week due to Russia’s invasion of Ukraine.
Experts told HousingWire that the turmoil could lower mortgage rates in the U.S. at least in the short-term, because investors often flee to safer options, such as U.S. Treasury notes, bonds and mortgage-backed securities during periods of conflict.
But the Federal Reserve was already balancing efforts to slow inflation without cooling the economy too much by rising rates this year. Experts expect inflation will be exacerbated by the conflict, especially considering sanctions on Russia, an oil-producing nation.
How the Fed thinks about the conflict in Ukraine — how long it may last, the likelihood it will expand beyond the borders of Ukraine, and its impact on the economy — will determine how mortgage rates move in the long term. The Fed will meet again from March 15 to 16, and is expected to raise rates from 0 to 0.25%.