Housing MarketMortgageOriginationReal Estate

Mortgage apps decline as first-time buyers pull back from the market 

Borrowers’ demand for government loans decreased by 14%: MBA

As the banking crisis stabilized last week, mortgage rates increased, reducing borrower demand for home loans. However, with limited for-sale housing inventory, these higher rates are primarily challenging for potential first-time homebuyers.

Overall, mortgage applications fell last week by 8.8% from one week earlier on a seasonally adjusted basis, per the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey. 

This was a reversal of the previous week’s trend, when homebuyers’ loan demand increased by 5.3%. The MBA survey, which has been conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications. 

“Last week’s increase in mortgage rates prompted a pullback in application activity. With more first-time homebuyers in the market, we continue to see increased sensitivity to rate changes,” Joel Kan, MBA’s vice president and chief economist, said in a statement.

The MBA survey shows the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) increased to 6.43% from 6.3% last week. Rates on jumbo loans (greater than $726,200) rose to 6.28% from 6.26% on a weekly basis.

Regarding the jumbo space, the spread between the jumbo and conforming 30-year fixed rates widened slightly last week to 15 basis points, tighter when compared to the past year, according to the MBA data.

“As banks reduce their willingness to hold jumbo loans, we expect this narrowing trend to continue,” Kan said. 

At HousingWire’s Mortgage Rates Center, the Optimal Blue data shows rates at 6.50% on Tuesday for conforming loans, up from 6.39% the previous Tuesday. Rates for jumbo loans increased to 6.62% from 6.48% in the same period. 

“Banking stress in the markets have gone away, so the bond market just bounced higher from a key technical point,” Logan Mohtashami, HousingWire’s lead analyst, said. “As long as the economy stays firm, we will bounce back and forth on rates.” 

Loan types 

The MBA data shows that purchase apps declined by 10% from one week earlier on a seasonally adjusted basis, and refinancings were down 5.8% in the same period. Refis comprised 27.6% of the total applications last week, up from 27% the previous week.

Meanwhile, mortgage apps declined by 6.9% in the conventional market, but decreased by 14% in the government space. 

The Federal Housing Administration (FHA) share of total applications increased to 12.7% last week from 12.3% the week prior. The U.S. Department of Veterans Affairs (VA) share fell to 11.7% from 12.8% in the same period. The U.S. Department of Agriculture (USDA) share remained unchanged at 0.5%. 

“Affordability challenges persist and there is limited for-sale inventory in many markets across the country, so buyers remain selective on when they act,” Kan said. “The 10% drop in FHA purchase applications, and the increase in the average purchase loan size to its highest level in a month, are other indications that first-time buyers have pulled back.”

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