Mortgage applications in the United States experienced a significant decline last week following a rise in the 30-year fixed mortgage rate for conforming loan balances, which reached its peak level since July. This notable trend was reported by the Mortgage Bankers Association (MBA) on Wednesday. The market composite index, an essential measure of loan application volume, fell by 3.7% for the week ending January 3, after making seasonal adjustments.
The association clarified that these figures were influenced by adjustments for the New Year's holiday period. According to Joel Kan, MBA's Deputy Chief Economist, there was a downturn in applications last week as increasing mortgage rates discouraged potential buyers from entering the market, leading to reduced purchasing activity.
However, without these adjustments, the index showed an impressive jump of 47% compared to the previous week. The average interest rate for 30-year fixed-rate mortgages, specifically for conforming loan balances of $766,550 or less, rose to 6.99% — marking the highest rate since July — up from 6.97% the week prior.
Conversely, for loans exceeding that amount, the rate decreased to 6.99% from 7.13%. Additionally, rates for 15-year loans saw an increase, climbing to 6.46% from the previous 6.43% over the same week. The seasonally adjusted purchase index recorded a decline of 7% from the previous week. Kan noted that the decrease in purchase applications affected both conventional and government loans, hitting the slowest weekly pace since February. Interestingly, the refinance index saw a marginal increase of 2% compared to the week before, as per the MBA's data. Kan elaborated that refinance applications rose despite the higher rates, although this increase was in reference to previously low levels.
The uptick was primarily driven by enhanced activity in Veteran Affairs (VA) refinances, which have been displaying weekly volatility. Moreover, fixed-rate mortgages with 30-year terms backed by the Federal Housing Administration (FHA) decreased slightly to 6.65% from 6.69% within the same week. The share of FHA loans, which are frequently favored by first-time homebuyers due to smaller down payment requirements, increased from 16.6% to 16.9% of total applications overnight..