Mortgage applications experienced a decline last week as elevated interest rates continued to exert downward pressure on refinance activity, as reported by the Mortgage Bankers Association. This scenario presents an intriguing dynamic for both buyers and the broader housing market landscape. The market composite index, which serves as a barometer for loan application volume, observed a decrease of 1.3% for the week ending September 27 on a seasonally adjusted basis.
This decline follows a notable 11% surge the previous week, highlighting the volatility within the current mortgage environment. Without the seasonal adjustments, the index shows a 1% decrease compared to the prior week, indicating a trend that warrants close monitoring. The refinance index showcased a significant weekly decline of 3%, yet due to a comparison with the previous year, it demonstrated an astonishing 186% increase.
This startling statistic sheds light on how recent market conditions have influenced borrower behaviors and may change their approaches toward refinancing mortgages. Mike Fratantoni, the association's chief economist, commented on the recent data, stating, "Last week's incoming data showed an economy that is still growing at a solid pace, even as inflation continues to decline." This indicates a dual narrative within the economy—while mortgage rates see a modest rise, the underlying economic indicators still project resilience. Indeed, the average interest rate for 30-year fixed-rate mortgages, specifically for conforming loan balances capped at $766,550, inched up to 6.14%, moving slightly from 6.13% in the preceding week.
For loan balances exceeding $766,550, the interest rate also escalated to 6.5% from the previous rate of 6.47%. Furthermore, rates on 15-year loans recorded an increase to 5.51%, compared to the prior week's 5.47%. In parallel, fixed-rate mortgages with 30-year marks backed by the Federal Housing Administration rose to 6.06%, incrementing from 5.99% week-over-week.
Noteworthy is the rise in the share of FHA loans, which cater largely to first-time home buyers and often entail smaller down payments, climbing to 16.6% of total applications from 15% the week before. Fratantoni elaborated on market dynamics by stating, "The news for the week was that more homebuyers appear to be entering the market." This reflects positively on the housing market as inventories of both new and existing homes have been on the rise throughout 2024.
The increase in inventory is a beacon for potential buyers, providing them with choices, especially as mortgage rates adjust, potentially enhancing affordability. The purchase index, a critical component for gauging buyer interest, recorded a modest 1% increase compared to the previous week, irrespective of adjustments.
When evaluated year-over-year without the seasonal nuances, the index shows a robust 9% gain, reinforcing the notion that buyer sentiment remains reactive and reflective of current market conditions..