Just one week after purchase mortgage apps plummeted to a 28-year low [1], the Mortgage Bankers Association (MBA) reported a slight week-over-week uptick in overall mortgage applications volume [2], rising a slight 0.6% from one week earlier for the week ending October 6, 2023.
The Market Composite Index, a measure of mortgage loan application volume, increased 0.6% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the Index increased 1% compared to the previous week. The Refinance Index increased 0.3% from the previous week, and was 9% lower than the same week one year ago. The seasonally adjusted Purchase Index increased 1% from one week earlier. The unadjusted Purchase Index increased 1% compared with the previous week, and was 19% lower than the same week one year ago.
The refinance share of mortgage activity decreased slightly to 31.6% of total applications from 31.7% the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 9.2% of total applications.
“While most mortgage rates increased last week, rates on ARMs declined, leading to an increase in ARM volume, and an increase in overall applications. The level of ARM applications increased by 15% over the week, bringing the ARM share up to 9.2% of all applications, the highest since November 2022. The yield curve has become less inverted in recent weeks, and ARM pricing has certainly improved,” said Joel Kan, MBA’s VP and Deputy Chief Economist [3]. “The 30-year fixed mortgage rate is at 7.67%–the highest level since 2000, and 40 basis points higher than a month ago. Application activity remains depressed and close to multi-decade lows, with purchase applications still almost 20% behind last year’s pace. Refinance applications also continue to be limited, and the average loan size has fallen to its lowest level since 2017.”
By loan type, the FHA share of total applications decreased slightly to 14.4% from 14.5% the week prior. The VA share of total applications increased to 10.2% from 10.1% the week prior. The USDA share of total applications remained unchanged at 0.5% from the week prior.
Redfin reports [4] that an increasing number of homeowners are listing their homes for sale after months of steady decline, as new home listings rose 3% in September—partly because listings did not have much more room to fall—however, it’s a glimmer of hope for potential buyers struggling with the limited amount of supply available.
According to Redfin Economic Research Lead Chen Zhao [5], “There are several reasons why mortgage rates are still climbing. The Fed hinted that another interest-rate hike before the end of the year is likely, the latest job market data came in stronger than expected, and the yield curve is steepening as investors prepare for higher rates for longer. Turmoil in Congress isn’t helping, either, as the clash among House Republicans stemming from the narrowly missed government shutdown is causing volatility in the stock and bond markets.”
And while the Fed may choose to take continued action [6] to tamp down inflation at its next Federal Open Market Committee (FOMC) set for October 31-November 1 [7], a coalition of industry trade groups have banded together to address the Fed’s monetary policy actions, including rate hikes and quantitative tightening. In a letter to the Honorable Jerome Powell [8], Chair of the Board of Governors of the Federal Reserve System, the MBA, National Association of Home Builders (NAHB), and National Association of Realtors (NAR) stress the negative market impacts that the Fed’s actions have had on the housing market.
The letter urges the Fed [8] to make two clear statements to the market:
- That the Fed no longer contemplate any further rate hikes; and
- That the Fed not sell off any of its MBS holdings until and unless the housing finance market has stabilized and mortgage-to-Treasury spreads have normalized.
“We urge the Fed to take these simple steps to ensure that this sector does not precipitate the hard landing the Fed has tried so hard to avoid,” said the letter [9].