Mortgage applications drop as rates reach multi-year highs

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Mortgage applications drop as rates reach multi-year highs

Mortgage applications and refinance applications are plummeting as a result of economic uncertainty and mortgage rates continue to reach multi-year highs each week. Mortgage loan applications decreased by 3.7% on a seasonally adjusted basis for the week ending Sept. 23 compared to the previous week, according to data collected by the Mortgage Bankers Association's Weekly Mortgage Applications Survey. The Market Composite Index decreased by 4% on an unadjusted basis.

The Refinance Index decreased by 11% from the previous week and was 84% lower than the same week a year ago.

The seasonally adjusted Purchase Index decreased by 0.4% compared to the previous week, while the unadjusted Purchase Index decreased 1%, making it 29% lower than this time last year.

The pace of refinancing is at a 22 year low and last week was more than 80 percent less than last year s level, said Joel Kan, Associate Vice President of Economic and Industry Forecasting at MBA s Associate Vice President of Economic and Industry Forecasting. Purchase activity was 29 percent less than a year ago, with higher rates and economic uncertainty weighing on buyers decisions. Kan said the application decline came after aggressive policy measures were taken by the Federal ReserveFederal Reserve to bring down inflation. The uncertainty surrounding the Fed's MBS and Treasury holdings is adding to the volatility in mortgage rates.

The mortgage rates went up more than a percentage point over the past six weeks after a pause in July. The 30 year fixed rate was 6.52% at the end of the Sept. 23 week, which is the highest since mid-2008.

The refinance share of mortgage activity decreased to 30.2% of total applications, compared to 32.5% in the previous week. There was an increase in the mortgage ARM share of activity to 10.4% of total applications.

As a rising rate environment, ARM loans are a viable option for qualified borrowers. In the past week, FHA applications decreased from 13.3% to 12.5%, while VA applications decreased from 10.9% to 10.7%. The USDA share of total applications was holding steady at 0.6% over the past two weeks.

The average contract interest rate for 30 year fixed-rate mortgages increased from 6.25% to 6.52% for conforming loan balances of $647,200 or less. For 80% of loan-to-value ratio loans, the origination fee went from 0.71 to 1.15. The effective rate also increased.

The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances greater than $647,000 increased from 5.79% to 6.01%. For 80% of loan-to-value ratio loans, the origination fee went from 0.46 to 0.7. The effective rate also increased.

An increase was also seen in the average contract interest rate for 30 year fixed-rate mortgages backed by the FHA, moving from 5.85% to 6.17%. For 80% of loan-to-value ratio loans, points increased from 1.15 to 1.31, including the origination fee. The effective rate was also increased.

The average contract interest rates for 15 year fixed-rate mortgages increased from 5.40% to 5.70%, with points increasing to 1.33 from 1.06, including the origination fee, for 80% loan-to-value ration loans. The effective rate went up from the previous week.

The average contract interest rate for 5 1 ARMs went from 5.14% to 5.30%. For 80% of loan-to-value ratio loans, points increased from 0.99 to 1.28, including the origination fee. The effective rate increased over the week.