Rising Rates Finally Make a Dent in Mortgage Apps

Mortgage activity suffered its first downturn of 2018 last week, breaking a three-week winning streak.  The Mortgage Bankers Association (MBA) reports that applications for both refinancing and purchasing were lower on a seasonally adjusted basis during the week ended January 26.  An adjustment to account for the Martin Luther King Holiday during the week ended January 19 sent unadjusted index numbers soaring by double digits.

The Market Composite Index, a measure of overall mortgage application volume, fell 2.6 percent on a seasonally adjusted basis after rising 4.5 percent the previous week. On an unadjusted basis, the Index increased 12 percent.  The Purchase Index decreased 3 percent on an adjusted basis compared to the week before. The unadjusted index gained 15 percent and was 10 percent higher than during the same week in 2016.

The Refinance Index decreased 3 percent from the previous week and the share of refinancing fell to 47.8 percent of all applications from 49.4 percent the prior week.  It was the lowest share for refinancing since August.

The FHA share of total applications dropped to 10.7 percent from 11.4 percent the previous week and the VA share was down from 10.9 percent to 10.1 percent. The USDA share of total applications was unchanged at 0.8 percent.

Rates were up again on both a contract and an effective basis with several products establishing multi-year highs. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances of $453,100 or less, increased from 4.36 percent the previous week to its highest level since March 2017, 4.41 percent.  Points increased to 0.56 from 0.54.

Jumbo 30-year FRM, loans with balances higher than the conforming rate, also had the highest rate since March of last year. The rate rose to 4.34 percent with 0.40 point from 4.31 percent with 0.38 point.  

The average rate for 30-year FRM backed by the FHA rose to its highest level since September 2013, 4.40 percent, from 4.37 percent.  Points increased to 0.68 from 0.65.

Fifteen-year FRM had an average rate of 3.85 percent, up from 3.81 percent the prior week, and the highest rate since April 2011.  Points rose to 0.60 from 0.52.

The share of adjustable-rate mortgage (ARM) activity rose to 5.7 percent of total applications from 5.2 percent in each of the preceding two weeks. The average contract interest rate for 5/1 ARMs increased to 3.79 percent, its highest level since March 2011, from 3.70 percent, with points increasing to 0.41 from 0.39. 

MBA's Weekly Mortgage Applications Survey has been conducted since 1990 and covers over 75 percent of all U.S. retail residential mortgage 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.