Mortgage applications experienced a notable decline last week as refinance activity significantly plummeted, even amidst generally lower interest rates across various loan types. This trend was reported by the Mortgage Bankers Association on Wednesday. The market composite index, which serves as a barometer for measuring loan application volume, witnessed a substantial decrease of approximately 10% for the week ending August 16, when adjusted for seasonal variations.
This decline partially reverses the previous week’s impressive growth of 17%. In absolute terms, the unadjusted index saw an 11% drop compared to the prior week. In terms of refinancing, the refinance index fell by 15% on a weekly basis. However, it is crucial to note that the index remains 23% higher than it was a month ago.
The prior two weeks had brought forth some of the most robust weekly figures seen since 2022, as noted by Joel Kan, the deputy chief economist of the association. Interestingly, refinance applications under the Federal Housing Administration (FHA) exhibited a different trend, increasing for the sixth consecutive week, reporting a staggering 90% surge year-over-year in the refinance index. The average interest rate for a 30-year fixed-rate mortgage, applicable to balances of $766,550 or less, decreased slightly to 6.5%—the lowest level recorded since May 2023—from the previous figure of 6.54%.
For mortgages with balances exceeding $766,550, the interest rate fell to 6.68%, down from 6.78%. Meanwhile, 15-year loan rates saw a rise, escalating to 6.04% from 5.96%. According to Kan, "Both mortgage rates and mortgage applications have now stabilized following a period of volatility in the financial markets, which had led to an abrupt decline in mortgage rates." For fixed-rate mortgages with 30-year terms supported by the FHA, rates decreased to 6.42% from 6.49% on a weekly basis.
Notably, the proportion of FHA loans, which are frequently utilized by first-time homebuyers and generally require lower down payments, rose to 15.6% of total applications, up from 13.5% the previous week. On the purchase side, the index experienced a 5% decline from the week prior, marking its lowest level since February.
Without seasonal adjustments, this index fell by 7% from the preceding week and was down by 8% year-over-year. Kan elaborated further, stating, "Home sales have decelerated, even as inventory levels rise. Despite the lower mortgage rates, prospective buyers are likely to be more discerning given the increased number of available options.".