FHA and VA Purchase Apps on the Rise

The latest analysis of mortgage application volume from the Mortgage Bankers Association (MBA) has found that mortgage applications increased 0.9% from one week earlier for the week ending July 7, 2023 (note that this week’s results include an adjustment for the observance of Independence Day last Tuesday).

Still warded off by high mortgage rates, those seeking refis continued to hold back, as the MBA’s Refinance Index decreased 1% from the previous week, and was 39% lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2% from one week earlier. The unadjusted Purchase Index decreased 19% compared with the previous week, and was 26% lower than the same week one year ago.

“Incoming economic data continue to send mixed signals about the economy, with the overall impact leaving Treasury yields higher last week as markets expect that the Federal Reserve will need to hold rates higher for longer to slow inflation. All mortgage rates in our survey followed suit, with the 30-year fixed rate increasing to 7.07%, the highest level since November 2022,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “The jumbo rate also increased to 7.04%, a record high for the jumbo series, which dates back to 2011.”

The refinance share of mortgage activity fell to 26.8% of total applications from 27.4% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.6% of total applications.

By loan type, the FHA share of total applications increased to 13.3%, up from 13% the week prior. The VA share of total applications increased to 12.6% from 11.7% the week prior. The USDA share of total applications remained unchanged at 0.4% from the week prior.

“Purchase applications increased, but remained at a very low level, and are 26% lower than the same week last year,” added Kan. “The rise in purchase activity was driven by increases in both FHA and VA purchase applications. The refinance index dropped to its lowest level since early June, as demand for rate/term and cash-out refinances remains extremely low with mortgage rates over 7%.”

News from the U.S. Bureau of Labor Statistics (BLS) found that inflation data is cooling as Federal Reserve continues its taming of the fed funds rate. The BLS reported that the Consumer Price Index (CPI) rose 3% in the year through June 2023, less than the 4% increase in the year through May, and just a third of its near 9% peak recorded last summer.

And with the lull in inflation, the housing market looks to benefit through a dip in the fixed-rate mortgage which may pull refi seekers off the sidelines and first-time homebuyers into the market.

“Low inflation means low mortgage rates. Therefore, decelerating consumer prices could steadily lift home sales and increase home production in a few months,” noted National Association of Realtors (NAR) Chief Economist Lawrence Yun. “CPI rose by 3% from one year ago, which is much lower than the 8%-9% hikes of last summer, and is the slowest gain in over two years. Falling gasoline prices and healthcare service costs were helpful. Rents are still climbing at a brisk pace, rising by 8.3%, but have turned the corner for sure. Rents were rising at 8.8% in the early part of the year, so this is the slowest gain in seven months. The one-month rent gain of 0.5% (or a 5.8% annualized gain) is suggesting further calming in rents in upcoming months. Moreover, with so many empty apartment units under construction, rents could plateau by this time next year.”

As Redfin reports, rents nationwide continue to slide, continuing a near-12-month downward trend; however, the median asking rent remains just $24 below its record high. Redfin reports that the median asking rent was $2,029 in June 2023, little changed from $1,995 one month earlier, $2,019 one year earlier, and a record high of $2,053 set in August 2022. In percentage terms, Redfin found that rent was up 0.5% year-over-year in June, not far from May’s 0.6% annual drop. Rents rose 1.7% from one month earlier in June.

“The housing market tends to be ‘downside sticky,’ which means rents don't typically fall much even when renter demand pulls back,” said Redfin Deputy Chief Economist Taylor Marr. “Instead of lowering rents when business is slow, many landlords offer perks like a free month’s rent or discounted parking, which tends to be less of a hit to profits. The steep slowdown in rent growth over the last year is providing some relief for renters, who now have more room to negotiate as their landlords grapple with rising vacancies. But with rents near their record high, most renters still aren’t finding big bargains.”