MBA Says Rate Spike is Closing Door on Refinancing

There was a small uptick in purchase mortgage activity during the first week of 2022. Refinancing held its own despite significant increases in interest rates.

The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of mortgage loan application volume, increased 1.4 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index was up 46 percent compared with the previous week. The data from the previous period had included an adjustment to account for Christmas Week.

The Refinance Index dipped 0.1 percent from the previous week and was 50 percent lower than the same week one year ago. The refinance share of mortgage activity decreased to 64.1 percent of total applications from 65.4 percent a week earlier.

The seasonally adjusted Purchase Index rose 2 percent and was up 51 percent on an unadjusted basis. The volume of purchase mortgage applications was 17 percent lower than the same week in 2021.

“Mortgage rates increased significantly across all loan types last week as the Federal Reserve’s signaling of tighter policy ahead pushed U.S. Treasury yields higher. The 30-year fixed rate hit 3.52 percent, its highest level since March 2020,” according to Joel Kan, MBA’s Associate Vice President of Economic and Industry Forecasting. “Rates at these levels are quickly closing the door on refinance opportunities for many borrowers. Although refinance activity changed little over the week, applications remained at their lowest level in over a month, and conventional refinance applications were at their lowest level since January 2020,” 

“The housing market started 2022 on a strong note. Both conventional and government purchase applications showed increases, with FHA purchase applications increasing almost 9 percent, and VA applications increasing more than 5 percent. MBA expects solid growth in purchase activity this year, as demographic drivers, and the strong economy support housing demand. However, the strength in growth will be dependent on housing inventory growing more rapidly to meet demand.” 

The FHA share of total applications increased to 9.9 percent from 9.2 percent and the VA share grew to 11.4 percent from 11.3 percent. The USDA share was unchanged at 0.4 percent. The average balance of a mortgage increased from $331,600 to $338,000 and the balance of purchase mortgages rose $100 to $401,700. 

The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or below the increased 2022 loan limit of $647,200 increased to 3.52 percent from 3.33 percent, with points decreasing to 0.45 from 0.48. The effective rate rose to 3.65 percent.

The rate for jumbo 30-year FRM, loans with balances exceeding the conforming limit, was 3.42 percent, up from 3.31 percent. Points dipped to 0.36 from 0.38 and the effective rate rose to 3.83 percent.

Thirty-year FRM backed by the FHA had a rate of 3.50 percent, a 10-basis point increase week-over-week. Points changed to 0.45 from 0.42, pushing the effective rate to 3,63 percent.

The contract rate for 15-year FRM was 2.73 percent with 0.35 point. This was up from 2.60 percent with 0.31 point the prior week. The effective rate was 2.82 percent.

The average contract interest rate for 5/1 adjustable-rate mortgages (ARMs) jumped to 3.03 percent from 2.45 percent. Points fell to 0.20 from 0.33 and the effective rate was 3.10 percent. The ARM share of applications decreased to 3.1 percent from 3.3 percent. 

MBA's Weekly Mortgage Applications Survey has been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks, and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.