Average Purchase Loan Size Hits Highest Level Since May

The Mortgage Bankers Association (MBA) reports in its latest Weekly Mortgage Applications Survey for the week ending July 21, overall mortgage app volume fell 1.8% week-over-week, amid mortgage rates still in excess of 6.70%.

Many anticipated the impending rate hike by the Federal Reserve, which came to fruition Wednesday with a 25-basis-point hike, after not taking action at their last meeting. It has been 22 years since the nominal interest rate set by the Federal Reserve’s Open Market Committee stood at 5.50%.

The MBA’s Refinance Index decreased 0.4% from the previous week, and was 30% lower than the same week just one year ago. The seasonally adjusted Purchase Index fell 3% from one week earlier, while the unadjusted Purchase Index decreased 2% compared to the previous week, and was 23% lower than the same week one year ago.

“Mortgage rates were essentially flat last week, but remained high, with the 30-year fixed rate staying at 6.87%, and contributing to a pullback in mortgage applications,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “The 2.5% decline in purchase activity, partly driven by a 10% decrease in FHA applications, pushed the Purchase Index to its lowest level in over a month. The decrease in FHA purchase applications contributed to an increase in the overall average purchase loan size to $432,700, its highest level since the end of this May. Refinance applications remained lackluster, running 30% behind year-ago levels. Many borrowers remain on the sidelines given current rates and persistent affordability challenges.”

As Kan reported, the FHA share of total applications decreased to 12.7% of overall volume from 13.6% the week prior, while the VA share of total apps remained unchanged at 12.1% from 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 28.7% of total applications from 28.4% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 5.9% of total applications.

While app volume begins to trend downward, a new report from the National Association of Home Builders (NAHB) found that low existing inventory that is keeping demand solid for new homes helped to push builder confidence up in July, despite the continued rise in mortgage rates, elevated construction costs, and limited lot availability. Builder confidence in the market for newly built single-family homes in July posted a one-point gain to 56, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI), marking the seventh consecutive month that builder confidence has increased.

“The lack of resale inventory means prospective home buyers who have not been priced out of the market continue to seek out new construction in greater numbers,” said NAHB Chairman Alicia Huey. “At the same time, builders are troubled over rising mortgage rates approaching 7% and continue to grapple with supply-side challenges, including ongoing scarcity of electrical transformer equipment and growing concerns about lot availability.”