Rising mortgage rates slow down refinancing
Mortgage applications fell by 5.1% last week, according to the Mortgage Bankers Association’s (MBA) Weekly Applications Survey for the week ending October 4, 2024. The data showed a decrease in both refinance and purchase applications, reflecting a continued cooling in the housing market.
The MBA’s Market Composite Index, which measures the volume of mortgage applications, dropped by 5.1% on a seasonally adjusted basis from the previous week. Unadjusted, the index decreased 5%. The Refinance Index fell sharply, down 9% from the prior week, though it remained 159% higher compared to the same period last year. The seasonally adjusted Purchase Index edged down 0.1%, while the unadjusted Purchase Index rose slightly, increasing by 0.1%. Compared to the same week a year ago, purchase applications were 8% higher.
MBA noted the drop in applications comes as mortgage rates rise, following stronger-than-expected economic data, including the September jobs report. Mike Fratantoni, MBA’s senior vice president and chief economist, highlighted the significant impact of higher rates on refinancing.
“Conventional loan refinances, which tend to have larger balances than government loans and hence are more responsive for a given change in mortgage rates, fell to a greater extent over the week,” Fratantoni said.
The 30-year fixed mortgage rate climbed to 6.36%, the highest level since August. Fratantoni added that despite the higher rates, purchase application volumes remained relatively stable, buoyed by increased housing inventory in several markets.
However, while mortgage rates have risen, they remain low by historical standards. Fratantoni emphasized that multiple factors, beyond just rates, influence the decision to buy a home.
“The largest constraint for many prospective homebuyers over the past year had been the lack of inventory,” said Fratantoni. “Now, there are more homes available in many markets across the country, and with mortgage rates still low compared to recent history, at least some potential homebuyers are moving ahead.”
The refinance share of mortgage activity dropped to 52.4%, down from 54.9% the previous week. Adjustable-rate mortgages (ARMs) accounted for 5.9% of total applications, an increase from the prior week.
In terms of government-backed loans, the Federal Housing Administration (FHA) share of total applications decreased to 16.2% from 16.6%, while the Department of Veterans Affairs (VA) share rose to 16.9% from 15.4%. The US Department of Agriculture (USDA) remained unchanged at 0.4%.
Average interest rates across various mortgage types also climbed. The average rate for 30-year fixed-rate mortgages with conforming loan balances rose to 6.36%, and the rate for 30-year fixed-rate jumbo loans increased to 6.64%. Meanwhile, 15-year fixed-rate mortgages saw an uptick to 5.71%, and the rate for 5/1 adjustable-rate mortgages increased to 6.06%.
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