Despite Low Mortgage Rates, Applications Fell ‘Sharply’

In a two-week period ending January 1, mortgage applications decreased 4.2%, according to data from the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey. (The results include adjustments to account for the holidays, the association reports).

In addition, the holiday-adjusted Refinance Index decreased 6% from two weeks ago. The unadjusted Refinance Index was 34% lower than two weeks ago and was 100% higher than the same week one year ago.

MBA reported that the seasonally adjusted Purchase Index decreased 0.8% from two weeks ago. The unadjusted Purchase Index decreased 30% compared with two weeks earlier and was 3% higher than the same week one year ago.

"Mortgage rates started 2021 close to record lows, most notably with the 30-year fixed-rate at 2.86%, and the 15-year fixed rate at a survey low of 2.40%. The record-low rates for fixed-rate mortgages is good news for borrowers looking to refinance or buy a home, as around 98% of all applications are for fixed-rate loans," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Despite these low rates, overall application activity fell sharply during the holiday period—which is typical every year. Refinance applications were 6% lower than two weeks ago, and purchase activity less than 1% from its pre-holiday level."

Kan added that the steady demand for home buying throughout most of 2020 should continue in 2021.

"MBA is forecasting for purchase originations to rise to $1.59 trillion this year—an all-time high," he said.

The MBA report, which can be accessed in full at MBA.org, covers more than 75% of all U.S. retail residential mortgage applications, and has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.

Here is a breakdown by types of contracts. Keep in mind that, while the index changes were calculated relative to two weeks prior, these measures are presented relative to the previous week.

• The FHA share of total applications remained unchanged from 10.1% the week prior. The VA share of total applications increased to 13.6% from 12.1% the week prior.
• The USDA share of total applications increased to .4% from .3% the week prior.
• The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) decreased to 2.86% from 2.90%, with points increasing to .35 from  .31 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from last week.
• The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) decreased to 3.08% from 3.09%, with points increasing to .32 from .30 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 15-year fixed-rate mortgages decreased to 2.40% from 2.42%, with points increasing to 0.29 from 0.28 (including the origination fee) for 80% LTV loans. The effective rate decreased from last week.
• The average contract interest rate for 5/1 ARMs increased to 2.63% from 2.57%, with points decreasing to 0.41 from 0.50 (including the origination fee) for 80% LTV loans. The effective rate increased from last week.