In a continued trend reflecting the challenges of affordability in the housing market, mortgage applications in the United States experienced a decline for the second consecutive week, according to the Mortgage Bankers Association (MBA). This report, released on Wednesday, highlights the growing difficulties that potential homebuyers are facing when entering the market.
The market composite index, which serves as a vital indicator of loan application volume, registered a decrease of 3.9% for the week ending July 26, when seasonally adjusted. This follows a preceding reduction of 2.2% in the prior week. Notably, when adjustments are not considered, the index exhibited a 4% decline compared to the previous week.
Examining the purchase index, it reflected a decrease of 2% after making seasonal adjustments, while it experienced a 1% dip on an unadjusted basis. These figures suggest that buyers are becoming increasingly hesitant, likely due to the ongoing affordability issues in the market. The refinance index, on the other hand, saw a notable decline of 7% from the previous week.
Nevertheless, it remains 32% higher compared to the same period last year, indicating that there have been “some small bursts” of refinancing activity recently. MBA Chief Economist Mike Fratantoni pointed out that certain loan types, particularly those backed by the Federal Housing Administration (FHA) and Veterans Administration (VA), are witnessing some upticks in refinancing.
Fratantoni further clarified, “Last week, VA (refinance) application volume dropped sharply, which drove the aggregate result.” He emphasized that many borrowers might be biding their time, awaiting indications that mortgage rates will trend downward as the Federal Reserve begins to implement cuts to short-term rates.
As for the interest rates, the average rate for 30-year fixed-rate mortgages with balances of $766,550 or less remained stable at 6.82%. For mortgages with balances exceeding $766,550, the rate saw a slight decrease, dipping from 7.09% to 7.07%. Meanwhile, the 15-year loan rate increased to 6.27%, compared to 6.21% the week prior.
In terms of FHA-backed fixed-rate mortgages with a 30-year term, the rate showed a decrease to 6.69% from 6.71% in the previous week. Interestingly, the proportion of FHA loans—often leveraged by first-time home buyers due to their lower down payment requirements—increased from 13.4% to 14.2% of total applications week-over-week, according to the latest findings.
Later on Wednesday, it was noted that the central bank's Federal Open Market Committee (FOMC) opted to keep interest rates steady between 5.25% to 5.50%, marking its eighth consecutive pause. The FOMC acknowledged that inflation remains "somewhat elevated," despite showing signs of easing over the preceding year, further complicating the landscape for prospective homebuyers.
In a separate announcement, the National Association of Realtors revealed that pending home sales in the US experienced a greater-than-expected increase in June. This growth was driven by rising demand across all four major regions, along with increasing inventory levels, which have provided buyers with improved leverage in negotiations..