In a recent report shared by the Mortgage Bankers Association, mortgage applications experienced a notable decline last week, despite a reduction in interest rates across various loan types. This decline highlights the ongoing affordability challenges facing prospective home buyers, particularly in light of persistently high home prices.
The market composite index, which serves as a benchmark for measuring loan application volume, saw a decrease of 2.2% for the week ending July 19, when adjusted seasonally. This followed a more favorable increase of 3.9% in the preceding week. When assessing the index without seasonal adjustments, it fell by 2% compared to the previous week. Interestingly, the refinance index did show some positive movement, edging up by 0.3% from the previous week and witnessing an impressive 38% increase year-on-year.
Joel Kan, the association's deputy chief economist, noted that the rise in refinance applications was predominantly fueled by conventional loans and Federal Housing Administration (FHA) applications. This uptick signifies that some borrowers are seizing the moment to refinance under more favorable conditions.
In fact, the conventional refinance index reached its highest level since September 2022, indicating a robust demand for refinancing options. Conversely, the purchase index, which gauges new mortgage applications for home purchases, saw a regrettable decline of 4%, both with and without seasonal adjustments compared to a week ago.
Kan explained that the continued downturn in purchase applications was largely attributable to the ongoing challenges of affordability, as current interest rates and strong home-price appreciation present significant hurdles for many prospective buyers. When examining the unadjusted purchase index, there was a staggering drop of 15% year-on-year. The average interest rate for 30-year fixed-rate mortgages, specifically for balances of $766,550 or less, has decreased slightly to 6.82%, marking its lowest level since February, down from 6.87% the previous week.
For loans exceeding $766,550, the rate experienced a negligible increase to 7.09% from 7.07%. Rates for 15-year loans also dipped, falling to 6.21% from 6.49% in the preceding week. Moreover, fixed-rate mortgages with 30-year terms backed by the FHA decreased to 6.71%, a decline from 6.75% the week prior.
It's worth noting that the share of FHA loans, which are frequently utilized by first-time home buyers due to their lower down payment requirements, saw a slight decrease in total applications, dropping to 13.4% from 13.5% on a weekly basis. Additionally, the National Association of Realtors published findings on Tuesday indicating that existing home sales fell in the past month.
During this period, prices reached another all-time high, while inventory surged to its highest level in more than four years. This increase in inventory suggests that the housing market may be moving towards a better state of balance, albeit amidst challenging conditions for buyers in terms of affordability and pricing..