Mortgage applications hit 22-year low

July 23,2022 | By ERICKSON J OCASIO

Analysts see growing signs of housing market slowdown ahead.

The US mortgage market has seen another drop in applications, with both refinance and purchase loan activity declining further as demand tumbles.

According to the Mortgage Bankers Association, overall mortgage applications were down 6.3% on a seasonally adjusted basis from one week earlier. Applications haven’t fallen this much since 2000.

“Similarly, with most mortgage rates more than two percentage points higher than a year ago, demand for refinances continues to plummet, with MBA’s refinance index also falling to a 22-year low,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.

MBA’s refinance and purchase indices – seasonally adjusted – posted week-over-week declines of 4% and 7%, respectively. Consequently, the refinance share of mortgage activity grew six basis points to 31.4% of total applications. The adjustable-rate mortgage (ARM) share of activity decreased to 9.5% of total applications.

“Purchase activity declined for both conventional and government loans, as the weakening economic outlook, high inflation, and persistent affordability challenges are impacting buyer demand,” Kan said. “The decline in recent purchase applications aligns with slower homebuilding activity due to reduced buyer traffic and ongoing building material shortages and higher costs.”

The dynamics of soaring mortgage rates and house price growth will continue to slow down activity in the single-family purchase market, Freddie Mac said in its new quarterly forecast. The 30-year fixed mortgage rate is expected to average 5% this year and 5.1% in 2023. That is compared to its 3% average in 2021.

Meanwhile, home price appreciation will likely remain high in 2022, averaging 12.8% before slowing to 4% in 2023. House price growth was 17.8% in 2021.

“The Federal Reserve’s action to help manage inflation has created significant volatility in mortgage rates and, by extension, the housing market,” said Freddie Mac chief economist Sam Khater. “Although house price appreciation will grow at a more moderate rate, home prices remain high relative to homebuyer incomes. Taken together, these factors are exacerbating affordability challenges and causing a slowdown in the housing market.”

Tags: Mortgage Credit, Mortgage Finance

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Mortgage applications hit 22-year low, lending activity suffers

August 27,2022 | By ERICKSON J OCASIO

MBA and Optimal Blue provide more details.

Mortgage application activity has slowed more than expected to its lowest level in 22 years, as both refinance and purchase applications contracted, according to the latest data from the Mortgage Bankers Association.

MBA’s Market Composite Index, which measures mortgage loan application volume, slipped 2.3% on a seasonally adjusted basis for the week ending August 12. Unadjusted, the index dropped 3% week over week.

“Mortgage application activity was lower last week, with overall applications declining over 2% to their lowest level since 2000,” said Joel Kan, AVP of economic and industry forecasting at MBA. “Home purchase applications continued to be held down by rapidly drying up demand, as high mortgage rates, challenging affordability, and a gloomier outlook of the economy kept buyers on the sidelines.”

The refinance index fell 5%, and the purchase index inched down by 1% from the previous week. Compared to a year ago, refinance and purchase applications were down by 82% and 18%, respectively.

“However, if home price growth slows more significantly and mortgage rates move lower, we might see some purchase activity return later in the year,” Kan added. “The 30-year fixed rate stayed more than two percentage points higher than a year ago at 5.45% but was down over 50 basis points from the June 2020 high of 5.98%, providing some relief for buyers in the market. The refinance index, however, fell 5% to its lowest level since November 2000, driven by a 6% drop in conventional refinance applications.”

Of total applications, the refinance share of mortgage activity decreased from 32% to 31.2% week over week. The adjustable-rate mortgage (ARM) share of activity dropped to 7% of total applications.

Subsequently, mortgage originators continue to experience strong headwinds.

“Although 30-year interest rates actually pulled back slightly in July, the originations market is still reacting to previous increases and continuing affordability challenges,” Optimal Blue president Scott Happ noted.

Black Knight, the parent company of Optimal Blue, reported that origination activity declined for the fourth month in a row, down 14.4% in June. The slowdown was driven by a 17% drop in rate/term refinances.