Mortgage apps decline 3.7% as rates surge

The market composite index is down 63.8% compared to the same week in 2021, MBA finds

Demand for mortgage loans declined last week when mortgage rates surged due to Federal Reserve Chairman Jerome Powell’s speech indicating that combating persistent inflation will cause some pain now.  

The market composite index, a measure of mortgage loan application volume, fell 3.7% for the week ending Aug. 26, compared to the previous week, according to the Mortgage Bankers Association (MBA). It was also down 63.8% compared to the same week in 2021.  

“Application volume dropped and remained at a multi-decade low last week,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting, in a statement. “Mortgage rates and Treasury yields rose last week as Federal Reserve officials indicated that short-term rates would stay higher for longer.”

At an economic policy symposium in Jackson Hole, Wyoming, on Friday, Powell said the Federal Open Market Committee (FOMC) would continue to be tightly focused on bringing inflation back down to its 2% goal.  

“July’s increase in the target range was the second 75 basis point increase in as many meetings, and I said then that another unusually large increase could be appropriate at our next meeting. We are now about halfway through the intermeeting period. Our decision at the September meeting will depend on the totality of the incoming data and the evolving outlook. At some point, as the stance of monetary policy tightens further, it likely will become appropriate to slow the pace of increases,” Powell said. 

Markets reacted by falling sharply on Friday morning. Meanwhile, mortgage rates – which have bounced between 5.40% and 5.80%, according to Kan – increased.  

The MBA estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) rose to 5.80% this week to the highest level since mid-July, from the previous week’s 5.65%. 

Jumbo mortgage loans (greater than $647,200) increased to 5.32% from 5.28% in the same period. “In another sign that market volatility has picked up, the average rate on a jumbo loan was 5.32%, 48 basis points lower than for a conforming loan. This spread reached a high of over 50 basis points in July – and had narrowed – before now widening again,” Kan said. 

Due to higher mortgage rates, the refinance index had a 7.7% decline from the previous week and fell 83.4% from the same week in 2021. Refinance share of all mortgage activity decreased to 30.3% of total applications last week from the previous week’s 31.1%. 

According to the MBA, the purchase index was down 1.8% from the previous week and decreased 23% from the same week in 2021. However, Kan said rising inventories and slower home-price growth could bring some buyers back into the market later this year. 

The Federal Housing Administration’s (FHA) share of total applications increased to 13% from the previous week’s 12.5%. The Veterans Affairs’s (V.A.) share of applications fell to 11.1% from 11.6%, and the United States Department of Agriculture’s (USDA) share went from 0.7% to 0.6%. 

The share of adjustable-rate mortgage (ARM) applications increased to 8.5% this week, from 6.5% of total applications last week. According to the MBA, the average interest rate for a 5/1 ARM increased to 4.78% from 4.81% a week prior. 

The survey, conducted weekly since 1990, covers 75% of all U.S. retail, residential mortgage applications.

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