Mortgage applications have witnessed a notable increase for the third consecutive week, driven by a decline in the 30-year fixed-rate mortgages for conforming loan balances, which have reached their lowest point since February 2023. This positive trend was highlighted by the recent report from the Mortgage Bankers Association (MBA) released on Wednesday. The market composite index, a key measure of loan application volume, demonstrated a rise of 1.4% for the week ending last Friday when adjusted seasonally.
This increase follows the upward momentum seen in the previous two weeks. However, without seasonal adjustments, the index recorded a more significant decline of 10% compared to the week prior. In terms of refinancing, the refinance index experienced a slight uptick of 1% on a weekly basis, impressively more than doubling compared to the same period last year.
Joel Kan, the MBA's deputy chief economist, noted, "With rates nearly a full percentage point lower than a year ago, refinance applications continue to run significantly higher than last year’s pace." Despite this, potential for refinancing remains somewhat constrained as a majority of borrowers still benefit from sub-5% interest rates. The average interest rate for 30-year fixed-rate mortgages, specifically for conforming loan balances of $766,550 or less, decreased to 6.29% from 6.43% the previous week.
Meanwhile, for loan balances exceeding $766,550, this rate fell to 6.56% from a prior 6.73%. The rates for 15-year loans also saw a drop to 5.71%, down from 5.98%. Mortgages with 30-year terms that are backed by the Federal Housing Administration (FHA) saw a decline, with rates decreasing to 6.24% from 6.30% week over week.
Notably, the share of FHA loans, often favored by first-time homebuyers due to smaller down payment options, increased slightly to 14.7% of total applications, up from 14.6% the previous week. The purchase index also reflected a positive movement, rising 2% from a week ago on a seasonally adjusted basis.
According to Kan, this figure is edging closer to reaching last year's levels. Conversely, without adjustments, this index exhibited a decline of 10% compared to the prior week and showed a decrease of 3% year over year. Kan further remarked, "Despite the drop in rates, challenges regarding affordability, as well as factors like limited housing inventory, may still be impacting buyers’ purchasing decisions." This combination of trends indicates a complex landscape for the mortgage market, with favorable rates potentially encouraging refinancing while still presenting hurdles for homebuyers addressing affordability issues..