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Mortgage demand declines at a slower pace

The slowdown occurred after rates dropped slightly prior to the Fed meeting

Borrowers’ demand for mortgage loans declined at a slower pace last week when mortgage rates dropped slightly ahead of the Federal Reserve’s (Fed) meeting to announce the new target for the federal funds rate. 

According to the latest survey from the Mortgage Bankers Association (MBA), the mortgage composite index for the week ending Oct. 28 fell 0.5% from the prior week and 68% compared to the same period in 2021. 

Surprisingly, the refinance index increased by 0.15% from the week prior, but was 85.4% lower than the same week one year ago. Meanwhile, the seasonally adjusted purchase index declined 0.8% from one week earlier and was down 40.8% from this time last year.

“Mortgage applications declined for the sixth consecutive week despite a slight drop in rates,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “The 30-year fixed rate decreased for the first time in over two months to 7.06%, but remained close to its highest since 2002.” 

The Fed will announce the new federal funds rate’s target on Wednesday, which industry observers expect to increase by 75 basis points to 3.25%-4%. So far this year, the tightening monetary policy has resulted in a cumulative 300 bps hike, resulting in higher mortgage rates. 

The MBA survey shows that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) unexpectedly decreased from the previous week’s 7.16% to this week’s 7.06%. A different index measures this week’s rates higher at 7.09%, according to Mortgage News Daily

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According to the MBA, rates also decreased for 5/1 ARMs, dropping to 5.79% this week from 5.86% the week prior. However, rates for jumbo loan balances (greater than $647,200) increased slightly from 6.53% to 6.55% during the same period. 

“Apart from the ARM loan rate, rates for all other loan types were more than three percentage points higher than they were a year ago,” Kan said. “These elevated rates continue to put pressure on both purchase and refinance activity and have added to the ongoing affordability challenges impacting the broader housing market, as seen in the deteriorating trends in housing starts and home sales.”

At 28.6%, last week’s refis share of total applications was below 30% for the fifth straight week — up from 28.2% from the week prior. The adjustable-rate mortgage (ARM) share of activity was at 11.8% of total applications.

The FHA share of total applications decreased slightly to 13.5% from 13.9% the week prior, while the VA share fell from 10.7% to 10.3%. Meanwhile, the USDA share remained at 0.5% during the same period.  

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

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