Requests to refinance accounted for 31 percent of all loan applications last week, well below the past decade’s average of 58 percent.

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Lower mortgage rates are proving enticing to some borrowers looking to refinance but have yet to get would-be homebuyers off the fence, according to a weekly survey of lenders by the Mortgage Bankers Association.

The MBA Weekly Mortgage Applications Survey shows that requests for purchase loans were down a seasonally adjusted 1 percent last week compared to the week before and 44 percent from a year ago. Refinancing applications were up 5 percent week over week but down 86 percent from a year ago.

Joel Kan

“Purchase applications continued to be hampered by broader weakness in the housing market and declined slightly over the week, with the index slipping to its lowest level since 2014,” said MBA Deputy Chief Economist Joel Kan, in a statement. “There was an increase in refinance activity as a result of the 16-basis-point decline in rates, as both conventional and government refinance applications increased. However, the overall pace of refinance applications was lower than November and December’s 2022 averages, and over 80 percent lower than a year ago.”

Requests to refinance accounted for 30.7 percent of all loan applications last week, well below the past decade’s average of 58 percent, Kan said.

Mortgage rates ease again

According to loan lock data tracked by Optimal Blue, rates on 30-year fixed-rate conforming mortgages hit a 2022 high of 7.16 percent on Oct. 24. Mortgage rates retreated in the last two months of the year, hitting a recent low of 6.24 percent on Dec. 15 as bond market investors anticipated the Federal Reserve’s decision to slow the pace of short-term interest rate hikes.

Although Optimal Blue data shows rates on 30-year fixed loans rebounded to 6.53 percent on Jan. 3, they’ve been trending down again since then, falling to 6.28 percent Tuesday.

Higher mortgage rates coupled with fierce home price appreciation have priced many would-be homebuyers out of the market. But homebuyer sentiment ticked up slightly in December, with more consumers in agreement with economists that home prices and mortgage rates probably peaked last year.

While only 14 percent of consumers surveyed by Fannie Mae last month thought mortgage rates would come down in the next 12 months, that’s up from 10 percent in November. And the share of respondents who think mortgage rates will go up in 2023 decreased to 51 percent, down from 62 percent in November.

Another potential headwind to getting buyers off the fence during the upcoming spring homebuying season is that mortgage credit has tightened.

Mortgage credit availability

Mortgage Bankers Association Mortgage Credit Availability Index (MCAI) not seasonally adjusted | Baseline of 100 equals mortgage credit in March 2012 | Source: Mortgage Bankers Association powered by ICE Mortgage Technology 

According to the MBA’s Mortgage Credit Availability Index (MCAI), as mortgage rates doubled over the past year, credit availability shrank by 18 percent.

“This pivot in the market resulted in lenders exiting certain origination channels to manage their operational costs or stop lending altogether, which was a main driver in the decrease in credit supply,” Kan said. “Additionally, investors stopped offering many streamlined refinance programs as rates increased and the refinance market shrank.”

FHA and VA loans, which are popular with homebuyers making small down payments, have seen the sharpest decline in credit availability, dropping by 23 percent over 12 months, Kan said.

The MCAI, which analyzes data from ICE Mortgage Technology, uses the relatively tight lending standards that were in place in March 2012 as a benchmark of 100. After nearly eight years of loosening, credit availability plummeted at the outset of the pandemic and has continued to decline, hitting 103.3 in December.

During the week ending Jan. 6, the MBA reported average rates for the following types of loans:

  • For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 6.42 percent, down from 6.58 percent the week before. With points remaining at 0.73 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate also decreased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged to 6.09 percent, down from 6.12 percent the week before. But with points increasing to 0.66 from 0.45 (including the origination fee) for 80 percent LTV loans, the effective rate increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 6.39 percent, down from 6.45 percent the week before. With points decreasing to 1.03 from 1.24 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
  • Rates for 15-year fixed-rate mortgages averaged 5.94 percent, down from 6.06 percent the week before. With points decreasing to 0.62 from 0.70 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased.
  • For 5/1 adjustable-rate mortgage (ARM) loans, rates averaged 5.37 percent, down from 5.61 percent the week before. Although points increased to 0.72 from 0.62 (including the origination fee) for 80 percent LTV loans, the effective rate decreased.

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Email Matt Carter

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