What a dip in mortgage demand says about the housing market

Overall application activity fell to the lowest level since 2018

Interest in residential mortgage loans fell 8.3% for the week ending April 22, including a sharp decline in purchase applications, which indicates a potential weakness in home sales in the coming months, according to the Mortgage Bankers Association‘s (MBA) latest survey.

Mortgage rates are now firmly above the 5% mark, at the highest level since 2009, depressing both purchase and refinance applications. Borrowers who are still planning to get a loan are increasingly interested in adjustable-rate mortgages (ARMs). 

According to the MBA, refi applications fell 9% from the prior week and were down 70.8% from a year ago. Meanwhile, the seasonally adjusted purchase index decreased 7.6% from the prior week and was down 16.6% year-over-year, with declines across all loan types.

“Overall application activity fell to the lowest level since 2018,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

“Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices,” he said. “The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months.”

Why lenders should think about non-QM now, not later

Agency rates are on the rise and refinance volume is down. Originators who had their best year in 2021 will have to utilize something else to make up for this loss in 2022 and non-QM can be the answer. 

Presented by: Angel Oak

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,200) increased to 5.37% from 5.20%. Meanwhile, for jumbo mortgage loans (greater than $647,000), rates on average jumped to 4.89% from 4.75% in the same period.

In total, the refinance share of all applications dipped to 35%, down from 35.7% the previous week. The MBA found that the adjustable-rate mortgage share increased to 9.3% of total applications, double of what it was just three months ago, which coincides with the 1.5 percentage point increase in the 30-year fixed rate.

“In a period of high home-price growth and rapidly increasing mortgage rates, borrowers continued to mitigate higher monthly payments by applying for ARM loans,” Kan said.

The FHA share of total applications increased to 10.6% from 9.9% a week earlier, and the share of VA applications rose slightly to 10.2% from 10.1%. The USDA share remained unchanged at 0.5%.

The survey, conducted since 1990, covers over 75% of the retail residential mortgage applications.

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