Purchase Apps for Conventional and FHA Mortgages on the Rise

Despite mortgage rates consistently lingering above the 7% mark, the Mortgage Bankers Association (MBA) reported new life in overall mortgage application volume, jumping 5.4% week-over-week for the week ending September 15, 2023.

Just last week, the MBA reported app volume dipped to levels last seen in 1996.

The MBA’s Refinance Index increased 13% from the previous week, and was 29% lower than the same week one year ago. The seasonally adjusted Purchase Index increased 2% from one week earlier. The unadjusted Purchase Index increased 12% compared with the previous week, and was 26% lower than the same week one year ago.

“Mortgage applications increased last week, despite the 30-year fixed rate edging back up to 7.31%–its highest level in four weeks,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Purchase applications increased for conventional and FHA loans over the week, but remained 26% lower than the same week a year ago, as homebuyers continue to face higher rates and limited for-sale inventory, which have made purchase conditions more challenging. Refinance applications also increased last week, but are still almost 30% lower than the same week last year.”

The refi share of mortgage activity increased to 31.6% of total applications, up from 29.1% the previous week, while the adjustable-rate mortgage (ARM) share of activity decreased to 7.2% of total applications.

By loan type, the FHA share of total applications remained unchanged from 14.2% the week prior. The VA share of total applications decreased to 11%, down from 11.3% the week prior. The USDA share of total applications remained unchanged at 0.4% from the week prior.

Redfin recently reported that home price gains in July rebounded year-over-year, increasing by 2.5% following two months of gains that came in at 1.6%. This annual reacceleration now shows six consecutive monthly gains which drove prices about 5% higher compared to February’s trough. The 11 states that saw home price declines were all in the Western U.S., but since many of those markets have ongoing inventory issues as recent buyer competition will cause prices to heat up again.

“The average loan size on a purchase application was $416,800, the highest level in six weeks,” added Kan. “Home prices in many markets have been supported by low inventory and resilient housing demand for available homes.”

Affordability continues to be a struggle for many, as in Q2 of this year, NerdWallet's First-Time Home Buyer Metro Affordability Report revealed climbing prices paired with relatively high interest rates made life even more difficult for potential first-time homebuyers.

In 2022, rates on 30-year mortgages climbed from just over 3% to nearly 7%, and the dramatic increase scared some potential home buyers away from the market. But this year, as buyers understand that these rates are here to stay, demand has returned. Unfortunately for first-time homebuyers, the rates that give them pause are a full-on roadblock for current homeowners with low-rate mortgages who would otherwise sell. This is keeping inventory levels low and maintaining tight competition in a high-priced environment.

First-time homebuyers typically face a tougher market than those buying for the second or subsequent time. The biggest constraint is that they are likely on a stricter budget. This can seriously impact the number of homes available to them, and in a housing market with already-sparse supply, first-time homebuyers willing to brave the environment are in brutal competition with one another.