MBA's Joel Kan expects the uptick in purchase applications to continue
Mortgage applications have changed little over the past week, but data showed a resurgence in purchase applications.
The Mortgage Bankers Association's weekly survey found a 0.3% increase in total loan application volume gain this week, with purchase applications rising 11%. The increase pushed the index of purchase application activity to its highest level since the onset of the coronavirus pandemic in mid-March.
"There continues to be a stark recovery in purchase applications, as most large states saw increases in activity last week. In the 10 largest states in MBA's survey, New York – after a 9% gain two weeks ago – led the increases with a 14% jump. Illinois, Florida, Georgia, California, and North Carolina also had double-digit increases last week," said Joel Kan, associate vice president of economic and industry forecasting at MBA.
Meanwhile, an uptick in mortgage rates and tighter lending standards have kept a lid on refinancing activity. The refinance index dropped 3% week over week and was 201% higher than the same week one year ago.
"Mortgage rates stayed close to record lows, but refinance applications decreased for the fourth consecutive week, driven by a 5% drop in conventional refinances," Kan said. "Despite the downward trend over the last month, mortgage lenders remain busy. Refinance activity was up 200% from a year ago."
Of total applications, the refinance share of mortgage activity fell to 67% from 70% last week. The adjustable-rate mortgage share of activity edged down to 2.9% of total applications. Meanwhile, the FHA share of mortgage activity increased to 11.5% from 11.1%. The VA share of total applications and USDA share also climbed a few basis points to 13.7% and 0.6%, respectively.
Kan predicted that this trend will continue as the US economy slowly recovers from COVID-19. A report from Oxford Economics backs up his forecast, suggesting that the purchase application data points to a rebound in home sales in May or June. However, due to the tightening of mortgage credit and the distressed labor market, the recovery in home sales might be moderate.
"We expect this positive purchase trend to continue – at varying rates across the country – as states gradually loosen social distancing measures, and some of the pent-up demand for housing returns in what is typically the final weeks of the spring homebuying season," Kan said.
