For the fourth consecutive week, mortgage application volume has risen, rising 2.9% over last week’s total according to data from the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending March 24, 2023.
Those seeking refis are also beginning to emerge from the woodwork, as the MBA’s Refinance Index increased 5% from the previous week, and yet remains 61% lower than the same week just one year ago. The seasonally adjusted Purchase Index increased 2% from one week earlier. The unadjusted Purchase Index increased 2% compared to the previous week, and was 35% lower than the same week one year ago.
“Application activity increased as mortgage rates declined for the third straight week. The 30-year fixed rate declined to 6.45%, the lowest level in over a month,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “While the 30-year fixed rate remained 1.65 percentage points higher than a year ago, homebuyers responded, leading to a fourth straight increase in purchase applications. Home-price growth has slowed markedly in many parts of the country, which has helped to improve buyers’ purchasing power. Purchase applications remain over 30% behind last year’s pace, but recent increases, along with data from other sources showing an uptick in home sales, is a welcome development.”
By loan type, the FHA share of total applications remained unchanged at 12.3% compared to the previous week, while the VA share of total applications decreased slightly to 11.6% down slightly from 11.7% the week prior. The USDA share of total applications remained unchanged at 0.5% from the week prior.
The refinance share of mortgage activity increased to 29.1% of total applications, up from 28.6% the previous week. The adjustable-rate mortgage (ARM) share of activity fell to 7.7% of total applications.
“Refinance activity also picked up last week, but remains 61% below last year’s pace,” added Kan. “Most homeowners still have rates significantly lower than current levels, leaving only a small pool of borrowers with an incentive to refinance.”
Mortgage rates continue to fall, as the Fed, continuing their aggressive series of rate hikes last week, raised the nominal interest rate by 25 basis points to a range of 4.75% to 5%.
And the dwindling of mortgage rates could not have come at a better time, as the spring homebuying season continues its start on the right foot, as Redfin reported a continued uptick in demand, following suit as the average daily mortgage rate continued to fall. The number of homebuyers contacting Redfin agents for tours and other services rose this week.
“We’re not seeing the typical spring seasonal increase in business,” said Boise, Idaho-based Redfin Agent Shauna Pendleton. “There’s no seasonality; homebuyers and sellers are hyper-focused on mortgage rates. If rates end the week down, all of a sudden buyers are out there making offers. If rates end the week high, buyers disappear.”
However, Redfin reports that housing supply remains at a premium, as listings of U.S. homes for sale fell 22% year-over-year during the four weeks ending March 19, one of the biggest declines since the outset of the pandemic. Redfin cited that many would-be sellers are reluctant to make a move because they want to hang onto their low mortgage rate.
The dip in supply can be attributed to the high cost of construction, as the National Association of Home Builders (NAHB) reports that after four consecutive declines, the producer price index (PPI) for inputs to residential construction less energy (i.e., building materials) rose 0.3% in February 2023 (not seasonally adjusted), following a 1.1% increase in January (revised). While the price of softwood lumber (seasonally adjusted) fell 0.8% in February, marking the seventh consecutive monthly decline–ready-mix concrete (RMC) prices continued its historic pace, increasing 0.8% in February after gaining 0.7% in January (revised), as RMC prices have increase in all but two months since January 2021.
Despite these factors, the NAHB notes that builders expressed cautious optimism in March as a lack of existing inventory is shifting demand to the new home market. Builder confidence in the market for newly built single-family homes in March rose two points to 44, according to the NAHB/Wells Fargo Housing Market Index (HMI)—marking the third straight monthly increase in builder sentiment levels.
“Even as builders continue to deal with stubbornly high construction costs and material supply chain disruptions, they continue to report strong pent-up demand as buyers are waiting for interest rates to drop and turning more to the new home market due to a shortage of existing inventory,” said NAHB Chairman Alicia Huey. “But given recent instability concerns in the banking system and volatility in interest rates, builders are highly uncertain about the near- and medium-term outlook.”