According to the Mortgage Bankers Association (MBA) [1], mortgage applications decreased 4.6% from one week earlier, according to its Weekly Mortgage Applications Survey for the week ending May 19, 2023.
The MBA’s Refinance Index fell 5% from the previous week, and was 44% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 4% from one week earlier. The unadjusted Purchase Index decreased 5% compared with the previous week, and was 30% lower than the same week one year ago.
“Mortgage applications declined almost 5% last week as borrowers remained sensitive to higher rates. The 30-year fixed rate increased to 6.69%, the highest level since March,” said Joel Kan, MBA’s VP and Deputy Chief Economist [2]. “Since rates have been so volatile and for-sale inventory still scarce, we have yet to see sustained growth in purchase applications. Refinance activity remains limited, with the refinance index falling to its lowest level in two months, and more than 40% below last year’s pace.”
The refinance share of mortgage activity remained unchanged at 27.4% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.7% of total applications.
By loan type, the FHA share of total applications increased to 12.5% from 12.0% the week prior. The VA share of total applications increased to 12.5% from 12.2% the week prior. The USDA share of total applications increased to 0.5% from 0.4% the week prior.
“Investors remained attuned to the uncertainty around the U.S. debt ceiling and communication from several Federal Reserve officials last week, which sent Treasury yields higher, along with mortgage rates,” added Kan. “Economic data released over the past week have also pointed to a still-resilient economy. The housing market received positive data on new residential construction–which is seen as a key solution to the lack of housing inventory.”
The limited amount of existing inventory has breathed new life into new construction resulting in a solid gain for builder confidence in May, as the National Association of Home Builders (NAHB) found that the lack of existing inventory has boosted builder confidence [3]. Builder confidence in the market for newly built single-family homes in May rose five points to 50, according to the NAHB/Wells Fargo Housing Market Index (HMI), marking the fifth consecutive month that builder confidence has increased, and the first time that sentiment levels have reached the midpoint mark of 50 since July 2022.
“New home construction is taking on an increased role in the marketplace because many home owners with loans well below current mortgage rates are electing to stay put, and this is keeping the supply of existing homes at a very low level,” said NAHB Chairman Alicia Huey [4]. “While this is fueling cautious optimism among builders, they continue to face ongoing challenges to meet a growing demand for new construction. These include shortages of transformers and other building materials and tightening credit conditions for residential real estate development and construction brought on by the actions of the Federal Reserve to raise interest rates.”
Earlier in the month, the Federal Reserve’s Federal Open Market Committee (FOMC) raised the nominal interest rate [5] by 25 basis points to a range of 5.00% to 5.25% due to the easing of inflation, which the FOMC is “strongly committed” to returning inflation to its 2% objective.
“The housing market impact will be tied more to the overall trajectory of economic uncertainty than to this week’s increase to the Federal funds rate,” noted Bright MLS Chief Economist Dr. Lisa Sturtevant [6]. “Mortgage rates have settled into a new normal of around 6.5 % on a 30-year fixed-rate loan. With growing recession risks, we could see mortgage rates dip lower, but we will not be returning to the 3% level seen during the height of the pandemic. Despite higher borrowing costs, buyers are still active in the market. Low inventory has kept prices stable, and even rising, in most markets. Repeat buyers, those who are selling a home before buying another, have record-high equity to roll into their home purchase, which, in many cases, has served to offset the impact of higher rates.”
Even with the near-5% week-over-week dip in mortgage app volume, the MBA’s latest Builder Application Survey (BAS) data [7] for April 2023 shows that mortgage applications for new home purchases increased 4.1% year-over-year, and compared to March 2023’s totals, applications decreased by 11%.
“Purchase applications for newly constructed homes declined in April but were up 4% compared to a year ago,” said Kan. “This was the third straight month of year-over-year growth in applications, which signals improving housing demand for newly built homes at a time when the broader housing market is leaning more on new construction to boost for-sale inventory levels. Mortgage rates have settled in the 6.5% range lately and remain over a percentage point higher than last year. The higher mortgage rate environment continues to factor into homebuying and selling decisions.”