Housing MarketMortgageOriginationReal Estate

Mortgage apps decrease as rates climb back toward 7%

Overall applications declined 5.7% last week, according to MBA data

Borrowers’ demand for home loans slowed down last week as mortgage rates increased to their highest level in two months. This time the source of volatility is not the Federal Reserve’s tightening monetary policy but ongoing discussions to raise the U.S. statutory debt ceiling in Congress.

Secretary of the Treasury Janet Yellen sent a letter to all members of Congressional leadership on Monday saying the federal government will likely no longer be able to satisfy its obligations if Congress has not acted to raise or suspend the debt limit potentially as early as June 1. The impasse, however, is already impacting the economy, Yellen wrote.

“We have learned from past debt limit impasses that waiting until the last minute to suspend or increase the debt limit can cause serious harm to business and consumer confidence, raise short-term borrowing costs for taxpayers, and negatively impact the credit rating of the United States,” Yellen wrote in the letter. 

“In fact, we have already seen Treasury‘s borrowing costs increase substantially for securities maturing in early June. If Congress fails to increase the debt limit, it would cause severe hardship to American families, harm our global leadership position, and raise questions about our ability to defend our national security interests.” 

In the mortgage market, the latest Mortgage Bankers Association  (MBA) data published on Wednesday morning showed that loan applications decreased by 5.7% for the week ending May 12, 2023, compared to one week earlier. The survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications.

Borrowers’ demand followed an increase in mortgage rates. The average 30-year fixed rate for conforming loans ($726,200 or less) rose to 6.57% last week from 6.48% the previous week. For jumbo loan balances (greater than $726,200), the rate grew to 6.46% from 6.33% in the same period, according to the MBA.   

At Mortgage News Daily, rates were even higher on Tuesday afternoon, at 6.69%, up two basis points from the previous day. 

“Mortgage rates increased last week even as Treasury yields were essentially flat, with the spread between the two rates widening to 310 basis points,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “Mortgage application activity slowed, as most mortgage rates in the survey increased, with the 30-year fixed rate jumping nine basis points to its highest level in two months.” 

Mortgage loan types

According to the MBA, refinancing applications declined 8% from the previous week and were 43% lower than the same week one year ago. Refis comprised 27.4% of the total applications last week, compared to 28% the prior week. 

According to Kan, “Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive.”

On Monday, a new Federal Reserve Bank of New York report showed that, from the second quarter of 2020 to the fourth quarter of 2021, 14 million mortgages were refinanced, accounting for nearly one-third of the outstanding mortgage balances.  

Meanwhile, purchase applications decreased 4.8% from one week earlier and were 26% lower than last year’s levels, as “buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remains scarce,” according to Kan. 

Regarding loan types, the adjustable-rate mortgage (ARM) share of mortgage apps decreased to 6.5% of total applications last week from 6.8% in the previous week, the MBA data shows. 

The Federal Housing Administration loans’ share fell to 12% from 12.1% the week prior. The U.S. Department of Veteran Affairs loans’ share decreased to 12.2% from 12.9% in the same period. And the U.S. Department of Agriculture loans’ share remained at 0.4% of the total applications.   

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