Mortgage application activity declined for the first time in two weeks. Applications had mostly fallen this year before experiencing a major jump ahead of the Federal Reserve’s (Fed) decision to cut interest rates by 0.25% in mid-September.
The Mortgage Bankers Association (MBA) reported a 12.7% decrease in the market composite index—the measure for mortgage loan application volume—for the week ending Sept. 26.
Prior to this, the index increased by only 0.6% on a seasonally adjusted basis for the week ending Sept. 19, indicating that the spike caused by the Fed’s cut was slowing down. In a recent speech, Federal Reserve Governor Michelle Bowman described the Fed’s decision to cut interest rates as a means to boost the flagging labor market.
On a seasonally unadjusted basis, the market composite index decreased at nearly the same rate by 13%. Dropping alongside the market composite index is the volume of refinanced loan applications. The refinance index decreased by nearly 21% from the previous week on both a seasonally adjusted and unadjusted basis, but is 16% higher than the same week one year ago.
MBA Vice President and Deputy Chief Economist Joel Kan said, “Mortgage rates increased to its highest level in three weeks as Treasury yields pushed higher on recent, stronger than expected economic data.”
In the previous survey, refinance applications had an overwhelming share of total applications, making up over 60%. MBA’s most recent survey reported that refinance applications continue to remain the majority, but with a slight drop down to 55%.
“After the burst in refinancing activity over the past month, this reversal in mortgage rates led to a sizable drop in refinance applications, consistent with our view that refinance opportunities this year will be short-lived,” added Kan.
The index for purchase applications decreased slightly by 1% from the previous week on a seasonally adjusted basis, but increased 16% from the same period last year.
“Purchase applications were down slightly over the week after three consecutive increases, but the strength of the purchase market has also been impacted by other factors such as broader economic conditions, the health of the job market and housing inventory,” Kan said.
Most of the different types of applications decreased in shares in the latest survey. Adjustable-rate mortgages (ARM) decreased to 8.4% of total applications, after being 8.9% in the previous survey.
VA loans decreased to 16.2% of total applications, from 17.5% the week prior. USDA loans remain unchanged at 0.4%. The only government-backed loan to increase in shares were FHA loans, which increased to 16.8% after being 15.7% in last week’s survey.
“With the 30-year fixed-rate now at 6.46%, refinance activity declined for all loan types, including a 22% decrease in conventional refinances and 27% decrease in VA refinances,” Kan said. “The average loan size for refinances dropped to $380,100 from $461,300 two weeks ago as these higher rates eliminated the refinance incentive for many borrowers with large loans.”
As mortgage applications have renewed their downward trend, lawmakers are yet to come to a resolution for government funding. The decline in mortgage applications may exacerbate due to the government shutdown.
The MBA recently stated that a shutdown that lasts for a few days would inconvenience single-family and multifamily mortgage markets. A government shutdown that lasts longer could lead to widespread federal layoffs and have further disruptive impacts.
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