Purchase Mortgage Apps Fall 42% YoY

The trend of high mortgage rates and waning interest in the housing market continued for the 10^th consecutive week, as the Mortgage Bankers Association (MBA) reported that overall mortgage application volume fell 1.7% week-over-week, for the week ending October 21, 2022.

The MBA’s Refinance Index increased 0.1% over the previous week and was 86% lower than the same week one year ago. The seasonally adjusted Purchase Index decreased 2% from one week earlier. The unadjusted Purchase Index decreased 3% compared with the previous week, and was 42% lower than the same week one year ago.

“Mortgage rates increased for the 10th consecutive week, with the 30-year fixed rate reaching 7.16%, the highest rate since 2001. The ongoing trend of rising mortgage rates continues to depress mortgage application activity, which remained at its slowest pace since 1997,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “Refinance applications were essentially unchanged, but purchase applications declined 2% to the slowest pace since 2015–over 40% behind last year’s pace. Despite higher rates and lower overall application activity, there was a slight increase in FHA purchase applications, as FHA rates remained lower than conventional loan rates.”

The refinance share of mortgage activity increased to 28.8% of total applications from 28.3% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 12.7% of total applications.

By loan type, the FHA share of total applications increased slightly to 13.9% from 13.6% the week prior. Both the VA share of total applications at 10.7% and the USDA share at 0.5% remained unchanged from the week prior.

“MBA’s forecast expects both economic and housing market weakness in 2023 to drive a 3% decline in purchase originations, while refinance volume is anticipated to decline by 24%,” added Kan, commenting on the MBA’s recently released forecast for 2023.

By the end of 2023, the MBA reports total mortgage volume is expected to decline 9% to $2.05 trillion from the $2.26 trillion expected in 2022. Purchase originations are forecast to decrease 3% to $1.53 trillion next year, while refinance volume is anticipated to decline by 24% to $513 billion.

“Next year will be particularly challenging for the U.S. and global economies. The sharp increase in interest rates this year–a consequence of the Federal Reserve’s efforts to slow inflation, will lead to an equally sharp slowdown in the economy, matching the downturn that is happening right now in the housing market,” said Mike Fratantoni, MBA’s Chief Economist and SVP of Research and Industry Technology. “MBA’s forecast calls for a recession in the first half of next year, driven by tighter financial conditions, reduced business investment, and slower global growth. As a result, the unemployment rate will increase from its current rate of 3.5% to 5.5% by the end of the year. Inflation will gradually decline towards the Fed’s 2% target by the middle of 2024.”