After showing signs of improvement last week, the Mortgage Bankers Association (MBA) has found that mortgage application volume dropped 4% week-over-week [1], according the latest Weekly Mortgage Applications Survey for the week ending December 10, 2021.
The MBA also reported that the Refinance Index decreased 6% from the previous week, and was an overwhelming 41% lower than the same week just one year ago. The seasonally adjusted Purchase Index increased 1% from one week earlier. The unadjusted Purchase Index decreased 4% compared with the previous week, and was 9% lower than the same week just one year ago.
The refinance share of overall mortgage activity decreased to 63.3% of total applications from 63.9% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 3.4% of total applications.
"Applications to refinance fell over the week, despite the 30-year fixed rate remaining at 3.30%. With rates more than 40 basis points higher than last year, applications were down 41% on an annual basis. Fewer homeowners have a strong incentive to refinance at current rates," said Joel Kan [2], MBA's Associate VP of Economic and Industry Forecasting.
By loan type, the FHA share of total applications decreased to 9.6% from 9.9% the week prior. The VA share of total apps decreased marginally to 10.6% from 10.7% the week prior. The USDA share of total applications remained unchanged week-over-week from 0.5%.
According to Redfin [3], there were just 1.38 million homes for sale nationwide in June on a seasonally adjusted basis, further magnifying the inventory shortage. That total marked an all-time low, and was down 23% year-over-year.
Despite the current inventory shortage, combined with inflation concerns, the National Association of Home Builders (NAHB) reports [4] that home builder confidence continues to rise for the fourth consecutive month.
“The most pressing issue for the housing sector remains lack of inventory,” said NAHB Chief Economist Robert Dietz [4]. “Building has increased but the industry faces constraints, namely cost/availability of materials, labor and lots. And while 2021 single-family starts are expected to end the year 24% higher than the pre-Covid 2019 level, we expect higher interest rates in 2022 will put a damper on housing affordability.”
It was expected that the Federal Reserve announcement of a gradual taper [5] in early November would place upward pressure on mortgage rates, rates have actually climbed at a slower pace than anticipated, still at or around the 3.10% mark, according the latest Primary Mortgage Market Survey (PMMS) [6] from Freddie Mac.
"Purchase activity increased slightly, as a 1.7% rise in conventional applications offset a 1.6% decline in applications for government loans,” added Kan. “The strength in conventional purchase activity continues to support higher loan balances, which moved back over $400,000. Housing demand remains strong as the year comes to an end amidst tight inventory and steep home-price growth."