Limited Inventory Weakens Conventional Purchase App Activity

For the second consecutive week, overall mortgage application volume fell, as the Mortgage Bankers Association (MBA) reports a 3% week-over-week decline in apps for the week ending July 28, 2023.

The MBA’s Refinance Index also dipped 3% from the previous week, and was 32% lower than the same week just one year ago. The seasonally adjusted Purchase Index decreased 3% from one week earlier, and the unadjusted Purchase Index decreased 3% compared to the previous week, and was 26% lower than the same week just one year ago.

“Mortgage rates edged higher last week, with the 30-year fixed mortgage rate’s increase to 6.93% leading to another decline in overall applications,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “The Purchase Index decreased for the third straight week to its lowest level since the beginning of June, and remains 26% behind last year’s levels. The decline in purchase activity was driven mainly by weaker conventional purchase application volume, as limited housing inventory and rates still close to 7% are crimping affordability for many potential homebuyers. The refinance market continues to feel the impact of these higher rates, and applications trailed last year’s pace by over 30% with many homeowners not looking for refinance opportunities.”

The MBA reports that the refinance share of mortgage activity increased to 28.9% of total applications, up from 28.7% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.5% of total applications.

By loan type, the FHA share of total applications increased to 13.3% from 12.7% the week prior, while the VA share of total applications decreased to 11.6% from 12.1% the week prior. The USDA share of total applications increased slightly to 0.7%, up from 0.5% the week prior.

A deeper look at affordability by Redfin found that prospective first-time buyers continue to face a litany of hurdles, including rising housing costs, continued high interest rates, low inventory, and other factors. The study found that the typical first-time U.S. homebuyer must earn an average of $64,500 in order to afford a starter home, a rise of 13% or $7,200 compared to a year ago.

According to Redfin, the typical starter home sold for an eye-watering record of $243,000 in June 2023, up 2.1% year-over-year and up 45% from before the pandemic. At the same time mortgage rates have hit 6.7% in June, up from 5.5% year-over-year and under 4% pre-pandemic.

“Buyers searching for starter homes in today’s market are on a wild goose chase because in many parts of the country, there’s no such thing as a starter home anymore,” said Redfin Senior Economist Sheharyar Bokhari. “The most affordable homes for sale are no longer affordable to people with lower budgets due to the combination of rising prices and rising rates. That’s locking many Americans out of the housing market altogether, preventing them from building equity and ultimately building lasting wealth. People who are already homeowners are sitting pretty, comparatively, because most of them have benefited from home values soaring over the last few years. That could lead to the wealth gap in this country becoming even more drastic.”