As mortgage rates reached their lowest level in a year this past week, demand for housing experienced a major jump in activity across refinance, 30-year-fixed and adjustable rate mortgage applications, especially.
According to the Mortgage Banker Association’s (MBA) weekly survey, the market composite index—the measurement for mortgage loan application volume—increased 29.7% for the week ending on Sept. 12. While the previous week’s adjusted index increased by 9.2%, this is the first time in weeks where the index increased on an unadjusted basis—jumping by 43%.
MBA’s Senior Vice President and Chief Economist, Mike Fratantoni, said, “Indicative of the weakening job market, and in anticipation of a rate cut from the Federal Reserve (Fed), mortgage rates last week dropped to their lowest level since last October, with the 30-year fixed rate declining to 6.39%.”
After the U.S. Bureau of Labor Statistics’ discouraging job report for August, questions have circulated as to whether the Fed will reduce rates to offset the effects of unemployment and inflation.
Experts like Redfin’s Chief Economist Daryl Fairweather predict that rates will be lowered by at least 25 basis points, and other players like homebuilders and buyers are preparing for that decision ahead of time.
“Homeowners responded swiftly, with refinance application volume jumping almost 60% compared to the prior week,” Fratantoni said.
Refinanced mortgage loan applications make up the majority of the staggering increase. The refinance index increased 58% from the previous week and is 70% higher than the same period one year ago—accounting for 59.8% of total applications. Purchase loans also increased, by 3% on a seasonally adjusted basis and 12% on an unadjusted basis. The unadjusted purchase index is also 20% higher compared to a year ago.
Maintaining consistency with the previous survey, refinance applications continue to make up the majority of total applications. In the previous survey refinanced mortgage applications accounted for 48.8% of total applications, and now they’ve grown to 59.8%.
“Homeowners with larger loans jumped first, as the average loan size on refinances reached its highest level in the 35-year history of our survey,” Fratantoni said. “Almost 60% of applications were for refinances, but there was also a pickup in purchase applications.”
In light of a falling 30-year fixed mortgage rate and possibly further decreases from the Fed, applicants overwhelmed the adjustable-rate mortgage (ARM) index with a seasonally adjusted increase of 81.2% from last week. The ARM index also increased by nearly 100% on an unadjusted basis.
“Even as 30-year fixed rates reached their lowest level in almost a year, more borrowers, and particularly more refinance borrowers, opted for adjustable-rate loans, with the ARM share reaching its highest level since 2008,” Fratantoni said. “Notably, ARMs typically have initial fixed terms of five, seven, or 10 years, so those loans do not pose the risk of early payment shock that pre-2008 ARMs did. Borrowers who do opt for an ARM are seeing rates about 75 basis points lower than for 30-year fixed rate loans.”
Government-backed loans fluctuated this past week. The FHA index saw a seasonally adjusted increase of 14.5%, but its share dropped to 16.3%—a slight drop after previously being 18.5% the week prior. VA loans also increased, with a 34.1% seasonally adjusted increase from the previous week and accounting for 15.8% of total loan applications.
USDA applications decreased slightly, going from 0.6% of total applications the prior week back down to a stable 0.5%.
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