Mortgage applications have shown a remarkable rebound, following two consecutive weeks of decline as refinance activity surged to its highest level since August 2022, according to insights provided by the Mortgage Bankers Association. This uptick has been largely attributed to the ongoing decrease in interest rates, which has created a more favorable environment for homeowners looking to refinance their existing loans. Specifically, the market composite index—an essential metric gauging loan application volume—experienced a notable increase of 3.9% for the week ending July 12, when adjusted seasonally.
This positive trend comes in stark contrast to the previous week's slight reduction of 0.2%, compounded by a more significant drop of 2.6% the week prior. When viewed without seasonal adjustments, the index reflects an impressive 30% sequential jump for the week of July 12th. In conjunction with this overall increase, the refinance index itself saw a substantial rise of 15% week-over-week, and a striking 37% increase year-over-year.
Joel Kan, the deputy chief economist for the association, emphasized that a considerable proportion of the refinance applications originated from loans associated with the Federal Housing Administration (FHA) and Veteran Affairs (VA); these loans are likely to be recently originated yet offered at even higher rates compared to the current market rates. Economic indicators suggest that mortgage rates saw a decline during the previous week, aided by emerging signs of softening inflation and an increased likelihood of interest rate cuts by the Federal Reserve later this year.
As reported by Kan, the average interest rate for 30-year fixed-rate mortgages for balances of $766,550 or less dipped to 6.87%, marking its lowest level since March, down from 7% the week prior. For mortgage balances exceeding $766,550, rates experienced a small reduction from 7.13% to 7.07%. Moreover, 15-year loans also exhibited a decline in rates, dropping from 6.63% to 6.49%. Furthermore, mortgages with a fixed 30-year term that are backed by the FHA saw their rates decrease from 6.87% to 6.75% in the past week.
Interestingly, there was also an uptick in the share of FHA loans—often favored by first-time homebuyers due to lower down payment requirements—reaching 13.5% of total applications compared to 12.5% from the previous week. In terms of purchase activity, the seasonally adjusted purchase index declined by 3% compared to the previous week.
However, when adjusted for seasonality, the purchase index indicated a weekly increase of 22%, although it revealed a year-on-year decline of 14%. In a related note, the National Association of Home Builders (NAHB) in collaboration with Wells Fargo reported a surprising drop in homebuilder confidence this month, attributing it to the burden of elevated mortgage and construction loan rates.
NAHB Chairman Carl Harris remarked, "While buyers appear to be waiting for lower interest rates, the six-month sales expectation for builders has moved higher. This indicates that builders anticipate mortgage rates will continue to trend lower later this year, supported by easing inflation data.".