Mortgage applications experienced a significant drop over the two weeks leading up to December 27, primarily driven by increases in rates across various loan types, as reported by the Mortgage Bankers Association. This period saw the market composite index, which gauges loan application volume, decline nearly 22% on a seasonally adjusted basis from the levels recorded on December 13.
When looking at absolute figures without seasonal adjustments, the index plummeted by an astonishing 55% during this two-week timeframe. To take note, the MBA chose to release two weeks’ worth of data in lieu of the standard weekly report, with the recent figures being adjusted to account for the Christmas holiday's influence on market activity. According to the association's chief economist, Mike Fratantoni, mortgage rates saw a steady increase through the last full week of 2024, culminating at approximately 7% for 30-year fixed-rate loans.
'Not surprisingly, this increase in rates—especially around a period typically marked by a slowdown in housing transactions—resulted in considerable declines in both refinance and purchase applications,' Fratantoni commented. The average interest rate for 30-year fixed-rate mortgages with conforming loan balances of $766,550 or less rose to 6.97%, up from 6.89% previously.
Additionally, for loan balances exceeding this amount, interest rates climbed to 7.13%, compared to the prior rate of 6.99%. Meanwhile, rates for 15-year loans went up to 6.43%, from the previous 6.37%. Fixed-rate mortgages backed by the Federal Housing Administration (FHA) also saw a slight increase, rising to 6.69% from 6.68%.
Notably, the proportion of FHA loans—often preferred by first-time home buyers due to lower down payment requirements—fell to 16.6% of all applications, down from 17.2% the week prior. The holiday-adjusted refinance index witnessed a staggering decrease of 36% compared to two weeks ago, with the unadjusted figures indicating an alarming 62% drop.
However, examining the data on an annual basis, the adjusted refinance index did show a slight rise of 10%, despite a decline of 6% when unadjusted. Conversely, the seasonally adjusted purchase index dropped by 13% from two weeks prior. When considering the absolute figures without adjustments, the purchase index fell by 48% during the same two-week period, reflecting a staggering 17% decline on an annual basis.
This landscape presents challenges for both potential home buyers and the overall housing market, suggesting that higher interest rates are likely to continue impacting application volumes as we head into 2024..