Purchase Apps Fall to Slowest Pace in a Month

Nationwide, spring home buyers are pumping the brakes, as the Mortgage Bankers Association (MBA) reports that mortgage application volume decreased 5.7% week-over-week, according to the association’s Weekly Mortgage Applications Survey for the week ending May 12, 2023.

The MBA’s Refinance Index decreased 8% from the previous week, and was 43% lower than the same week one year ago. The seasonally adjusted Purchase Index fell 4.8% from one week earlier. The unadjusted Purchase Index decreased 5% compared with the previous week, and was 26% lower than the same week one year ago.

“Mortgage rates increased last week even as Treasury yields were essentially flat, with the spread between the two rates widening to 310-basis points. Mortgage application activity slowed, as most mortgage rates in the survey increased, with the 30-year fixed rate jumping nine basis points to its highest level in two months at 6.57%,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Purchase applications decreased 5% to its slowest pace in a month, as buyers remain wary of this rate volatility, but also as for-sale inventory in many parts of the country remains scarce.

The refinance share of mortgage activity decreased to 27.4% of total applications from 28% the previous week, while the adjustable-rate mortgage (ARM) share of activity decreased to 6.5% of total applications.

“Refinance applications accounted for 27% of all applications and dropped almost 8% last week,” added Kan. “Most borrowers have lower rates on their mortgages, and those who are in the market are extremely rate sensitive.”

By loan type, the FHA share of total applications fell slightly to 12% from 12.1% the week prior. The VA share of total applications decreased to 12.2% from 12.9% the week prior. The USDA share of total applications remained unchanged at 0.4% from last week’s total.

Redfin reports that limited inventory and elevated mortgage rates continue to suppress sales nationwide, as homebuyers enter the heart of spring—typically a hot homebuying season. New listings of homes for sale dropped 19% year-over-year during the four weeks ending May 7 according to Redfin, contributing to an unseasonal monthly decline in total inventory. There were 16% fewer pending home sales year-over-year, reflecting the lack of listings and the group of potential buyers that have been priced out by mortgage rates still above the 6%-mark.

“This spring’s housing market is hot but cold, with scant listings making it less active than usual but fast and competitive at the same time. The good news is that buyers are out there, trying to find a seat in a game of musical chairs. The bad news is there aren’t enough chairs,” said Redfin Deputy Chief Economist Taylor Marr. “A lot of potential home sales are locked up until mortgage rates come down to a level for which current owners would be willing to trade in their 3% rate. The problem is that’s unlikely to happen anytime soon, as although inflation is steadily coming down from last year’s record-high levels, it’s still above target.”