As mortgage rates slid yet another week [1], the Mortgage Bankers Association (MBA) reported that overall application volume rose for the second consecutive week, increasing 0.9% week-over-week according to the MBA’s Weekly Mortgage Applications Survey [2] for the week ending December 16, 2022.
The MBA’s Refinance Index increased 6% from the previous week, yet was still 85% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 0.1% from one week earlier. The unadjusted Purchase Index decreased 3% compared with the previous week, and was 36% lower than the same week one year ago.
“The Federal Reserve raised its short-term rate target last week [3], but longer-term rates, including mortgage rates, declined for the week, with the 30-year conforming rate reaching 6.34%–its lowest level since September,” said Mike Fratantoni, MBA’s SVP and Chief Economist [4]. “Refinance application volume increased slightly in response, but was still about 85% below year-ago levels. This is a particularly slow time of year for homebuying, so it is not surprising that purchase applications did not move much in response to lower mortgage rates.”
The MBA reported the overall refinance share of mortgage activity increased to 31.3% of total applications, up from 29.4% the previous week. And while mortgage rates continue to exceed the 6% mark, the adjustable-rate mortgage (ARM) share of activity decreased to 7.5% of total applications.
“The latest data on the housing market show that homebuilders are pulling back the pace of new construction in response to low levels of traffic, and we expect this weakness in demand will persist in 2023, as the U.S. is likely to enter a recession,” added Fratantoni. “However, if mortgage rates continue to trend down, as we are forecasting, more buyers are likely to return to the market later in the year, as affordability improves with both lower rates and slower home-price growth.”
According to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) [5], builder confidence in the market for newly built single-family homes posted its 12th straight monthly decline in December, dropping two points to 31—marking the lowest confidence reading since mid-2012, with the exception of the onset of the pandemic in the spring of 2020.
“In this high inflation, high mortgage rate environment, builders are struggling to keep housing affordable for home buyers,” said NAHB Chairman Jerry Konter [6], a home builder and developer from Savannah, Ga. “Our latest survey shows 62% of builders are using incentives to bolster sales, including providing mortgage rate buy-downs, paying points for buyers, and offering price reductions. But with construction costs up more than 30% since inflation began to take off at the beginning of the year, there is little room for builders to cut prices. Only 35% of builders reduced homes prices in December, edging down from 36% in November. The average price reduction was 8%, up from 5% or 6% earlier in the year.”
The MBA also reported that, by loan type, the FHA share of total applications decreased slightly to 13.0%, down from 13.1% the week prior. On the rise was the share of VA applications, which increased to 11.9% from 11.5% the week prior.
The USDA share of total applications remained unchanged at 0.6% from the week prior.