Mortgage demand continues to fall amid pressure on rates

The market composite index declined 0.8% for the week ending Sep. 2, with no sign of a rebound yet

Demand for mortgage loans declined last week as the markets continue to exert pressure on rates. With the 30-year fixed-rate hovering above the 6% level again, there’s no sign of a rebound in applications yet, despite a robust job market and growing housing inventory.

The market composite index, a measure of mortgage loan application volume, fell 0.8% for the week ending Sep. 2, compared to the previous week, according to the Mortgage Bankers Association (MBA). It was also down 63.4% compared to the same week in 2021.  

“Mortgage rates moved higher over the course of last week as markets continued to re-assess the prospects for the economy and the path of monetary policy, with expectations for short-term rates to move and stay higher for longer,” said Mike Fratantoni, MBA’s senior vice president and chief economist, in a statement.

The MBA estimates that the average contract 30-year fixed-rate mortgage for conforming loans ($647,200 or less) rose to 5.94% this week to the highest level since mid-June, from the previous week’s 5.80%. Jumbo mortgage loans (greater than $647,200) increased to 5.46% from 5.32% in the same period.

Mortgage rates tend to reflect the Federal Reserve’s moves to combat inflation. At an economic policy symposium in Jackson Hole, Wyoming, at the end of August, Chairman Jerome Powell said the Federal Open Market Committee (FOMC) would continue to be tightly focused on bringing inflation back down to its 2% goal. 

“Recent economic data will likely prevent any significant decline in mortgage rates in the near term, but the strong job market depicted in the August data should support housing demand,” said Fratantoni. “There is no sign of a rebound in purchase applications yet, but the robust job market and an increase in housing inventories should lead to an eventual increase in purchase activity.”

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According to the MBA, the purchase index was down 0.65% from the previous week and decreased 23.4% from the same week in 2021.

Meanwhile, the refinance index declined 1% from the previous week and fell 83% from the same week in 2021. Refinance share of all mortgage activity increased to 30.7% of total applications last week from the previous week’s 30.3%. 

The Federal Housing Administration’s (FHA) share of total applications increased to 13.3% from the previous week’s 13%. The Veterans Affairs’s (V.A.) share of applications fell to 10.8% from 11.1%, and the United States Department of Agriculture’s (USDA) share held steady at 0.6%. 

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

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

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