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Mortgage Purchase Activity ‘Hamstrung’ by Market Forces

Despite a reduction last week in the 30-year fixed-rate mortgage (FRM), the Mortgage Bankers Association (MBA) has reported a decline in overall mortgage application volume, as mortgage apps fell 5.4% week-over-week (for the week ending July 1, 2022).

The MBA’s Refinance Index decreased 8% from the previous week, and was 78% lower than the same week just one year ago. The seasonally adjusted Purchase Index decreased 4% from one week earlier, while the unadjusted Purchase Index increased 7% compared with the previous week, and was 17% lower than the same week one year ago.

And just as FRMs were heading on a collision course with the 6%-mark, Freddie Mac reported a hard turn last week, dropping to 5.70% (down 0.11% from the previous week). This marked the first week of declines in rates after a three-week run in rates rising.

The refinance share of overall mortgage activity fell to 29.6% of total applications, down slightly from 30.3% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 9.5% of total applications.

“Mortgage rates decreased for the second week in a row, as growing concerns over an economic slowdown and increased recessionary risks kept Treasury yields lower. Mortgage rates have increased sharply thus far in 2022, but have fallen 24-basis points over the past two weeks, with the 30-year fixed rate at 5.74%,” said Joel Kan, MBA’s Associate VP of Economic and Industry Forecasting. “Rates are still significantly higher than they were a year ago, which is why applications for home purchases and refinances remain depressed. Purchase activity is hamstrung by ongoing affordability challenges and low inventory, and homeowners still have reduced incentive to apply for a refinance."

With continued inflationary concerns top-of-mind for most prospective buyers, affordability remains an insurmountable obstacle for many. But Redfin reports there may be relief just upon the horizon. The average asking price of a newly listed home is off 1.5% from its peak in spring reports Redfin, in light of the rapid rate increase by the Federal Reserve in June. Redfin found that a record number of existing sellers were forced to drop their asking price in order to stay competitive during the four-week period ending June 26. This news comes amid reports that pending sales continue to fall, posting their largest declines since May of 2020 at the height of the pandemic, and there are signs that early-stage homebuyer demand is beginning to level off.

By loan type, the MBA reported that the FHA share of total apps remained unchanged week-over-week at 12%, while the VA share of total apps decreased slightly to 11.1% from 11.2% the week prior. The USDA share of total applications remained unchanged at 0.6% from the week prior.

About Author: Eric C. Peck

Eric C. Peck has 20-plus years’ experience covering the mortgage industry, he most recently served as Editor-in-Chief for The Mortgage Press and National Mortgage Professional Magazine. Peck graduated from the New York Institute of Technology where he received his B.A. in Communication Arts/Media. After graduating, he began his professional career with Videography Magazine before landing in the mortgage space. Peck has edited three published books and has served as Copy Editor for Entrepreneur.com.
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