Purchase Application Volumes Down to 18-Year Low

A moderate pickup in refinance activity brought total mortgage application volume up slightly in February despite a steep drop in home purchase applications.

The Mortgage Bankers Association’s (MBA) application data for last month showed a 0.1 percent bump in total application volume, down from a gain of 2.5 percent in January.

Growth was toppled by a 9.0 percent drop in applications for home purchases, which were at their lowest level in more than 18 years in February—despite a 9 percent week-over-week improvement to close out the month.

Paul Diggle, property economist for macroeconomic research firm Capital Economics, said the sharp decline was likely the result of the Consumer Financial Protection Bureau’s (CFPB) qualified mortgage (QM) rule, which—after a year of build-up—finally kicked in halfway through the month.

“While the rule is not particularly onerous, consumers’ perception of a tightening in credit conditions as a result of the QM rule could have weighed on applications in February,” Diggle said.

In the long run, however, Capital Economics maintains that QM is “unlikely to be a significant constraint on mortgage lending.”

On the refinance side, applications were up 4.8 percent compared to January as MBA’s measured of long-term fixed rates fell 13 basis points to 4.49 percent.

Even with the increase, refinance applications remain down 60 percent compared to this time last year, when mortgage rates were still in the 3 percent range. With rates slated for a steady increase over the year and refinance opportunities fast disappearing, “the scope for significant gains in refinancing volumes is limited,” Diggle said.

As always, though, there’s a silver lining, as Diggle notes: “One potential upshot of the end of the refinancing boom is a loosening in credit conditions, as lenders look to replace profits lost on refinancing with lending for home purchase. Indeed, consistent with that, typical loan-to-value ratios are rising.”