Mortgage applications have continued their downward trajectory for the third consecutive week, reflecting an increase in rates across all types of loans, as indicated by the Mortgage Bankers Association. This decline signals a noticeable shift in the housing market dynamics that could affect both buyers and refinancers alike. According to the latest report, the market composite index, which serves as a measure of loan application volume, plummeted by 17% for the week ending on October 11, based on both adjusted and unadjusted metrics.
This drop comes after previous weeks where declines were noted at 5.1% and 1.3%, respectively. The ongoing trend raises concerns about potential implications on home purchasing and refinancing activities, particularly as the overall economy experiences fluctuations. The refinance index saw a staggering decline of 26% week-over-week, reaching its lowest level since August.
Joel Kan, the association's deputy chief economist, highlighted that there were comparable declines in both conventional and government refinances. This downward movement has pushed the refinance share of applications below 50% for the first time in over a month, indicating a significant shift in homeowner behavior amidst rising rates.
On an annual basis, however, the refinance index still demonstrated a robust jump of 111%. In terms of the purchase index, there was also a decline of 7% from the previous week when considering adjusted and unadjusted figures alike. Nonetheless, without adjustments, the index reported a year-over-year gain of 7%, suggesting that while immediate applications have tapered off, there remains some resilience in the market over a longer period. Kan noted that the recent increase in rates has dampened overall applications, emphasizing, "Demand is holding up to an extent for prospective first-time buyers." This sentiment reveals a nuanced picture where first-time homebuyers are still active, albeit facing increased costs. Current interest rates reflect a significant rise, with the average rate for 30-year fixed-rate mortgages for conforming loan balances of $766,550 or less having jumped to 6.52%.
This marks the highest level since August, up from 6.36% the prior week. For loans exceeding that threshold, the rate increased to 6.76% from 6.64%. Furthermore, the rate for 15-year loans escalated to 5.94%, compared to 5.71% last week. Additionally, fixed-rate mortgages with 30-year terms backed by the Federal Housing Administration (FHA) saw rates increase to 6.42% from 6.22% on a week-over-week basis.
FHA loans are frequently favored by first-time homebuyers due to their more lenient down payment requirements. However, the share of FHA loans dropped slightly to 15.9% of total applications, down from 16.2% the previous week. Despite the escalating rates, FHA purchase applications remained relatively stable, as Kan pointed out, saying, "FHA purchase applications were little changed despite the increase in rates, as some first-time homebuyers remain in the market because of improving housing inventory conditions." This adaptation reflects potential long-term trends as the market continues to navigate the complexities of rising interest rates and changing housing availability..