Refi Apps Fall as Rates Continue to Rise

The Mortgage Bankers Association (MBA) has reported that mortgage applications fell 8.1% week-over-week for the week ending February 4, 2022.

The MBA’s Refinance Index decreased 7% from the previous week, and was 52% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 10% from one week earlier. The unadjusted Purchase Index decreased 3% compared with the previous week, and was 12% lower than the same week just one year ago.

The refinance share of mortgage activity decreased to 56.2% of total applications, from 57.3% the previous week. The adjustable-rate mortgage (ARM) share of activity remained unchanged at 4.5% of total applications.

"Mortgage rates continued to edge higher last week, with the 30-year fixed rate climbing to 3.83%,” said Joel Kan, MBA's Associate VP of Economic and Industry Forecasting. “Rates followed the U.S. 10-year yield, and other sovereign bonds as the Federal Reserve and other key global central banks responded to growing inflationary pressures and signaled that they will start to remove accommodative policies. With rates 87 basis points higher than the same week a year ago, refinance applications continued to decrease.”

By loan type, the FHA share of total applications increased to 8% from 7.7% the week prior. The VA share of total applications increased to 10% from 9.1% the week prior. The USDA share of total applications remained unchanged at 0.4% from the week prior.

"Purchase activity slowed after the previous week's gain,” noted Kan. “Both conventional and FHA purchase applications saw proportional declines, resulting in purchase activity overall dropping 10%. The average loan size again hit another record high at $446,000. Activity continues to be dominated by larger loan balances, as inventory remains tight for entry-level buyers."

Consumer sentiment toward housing softened in January 2022, reaching its lowest level since May 2020, as affordability restrictions continue to weigh on the housing market. A record-low 25% of survey respondents in January reported that they believe it’s a good time to buy a home, compared to the 69% of consumers who reported now is the best time to sell.

One of the factors weighing on the mind of prospective buyers remains the lack of available homes for sale. However, a solution to boosting inventory numbers comes from the nation’s homebuilders, who have been busy trying to make up for the lack of existing homes on the market and keep up with high demand.

Redfin recently reported that overall inventory dropped to a record low in December, as the supply of existing homes fell 14.2% year-over-year, and there was a record-low 1.8 month’s worth-supply. For new homes, there was six months of supply and inventory was up 34.8%. As the share of homes for sale of newly built homes has risen, the share of home sales that are new builds has remained relatively consistent at approximately 11%.

Overall, the nation’s housing market gained $6.9 trillion in value in 2021, increasing to $43.4 trillion throughout the year found Zillow. Historically, the market hit the $10 trillion mark in 1994, $20 trillion in 2004, and $30 trillion in July of 2017.