Despite a decline in mortgage rates last week, mortgage application volume was down 1.2% on a seasonally adjusted basis for the week ending May 20. The decline, as measured by the Mortgage Bankers Association’s (MBA’s) Market Composite Index, continued to be led by a drop in the refinance share of mortgage activity, which has been consistent for more than two months.
“The 30-year fixed rate declined for the second straight week to 5.46% but remains well above what borrowers were used to over the past two years,” Joel Kan, associate vice president of economic and industry forecasting at MBA said, in a statement. “Most refinance borrowers continue to remain on the sidelines as a result, and refinance applications have fallen in nine of the past 10 weeks.”
Refinance share of mortgage activity dropped to 32.3% of total applications from 33% the previous week, according to the MBA, and refinance activity is down 66% compared to January 2022.
Higher mortgage rates also impacted purchase market conditions, according to the MBA. The seasonally adjusted purchase index rose 0.2% from a week earlier, “close to lows last seen in the spring of 2020 when a significant portion of activity was put on hold due to the onset of the pandemic,” said Kan. “Currently, higher rates, low inventory, and high prices are keeping prospective buyers out of the market.”
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) marginally fell to 10.4% from 10.5% in the prior week. The average contract interest rate for 30-year fixed-rate mortgages with jumbo-loan balances (greater than $647,200) also dropped slightly to 5.02% from 5.03% a year earlier.
According to the MBA, both the adjustable-rate mortgage (ARM) share of activity dipped to 9.4% and the Veterans Affairs (VA) loans fell to 10.4% of total applications. The Federal Housing Administration (FHA) share of all applications inched up to 11.3% from 11.1% the prior week. The USDA share remained unchanged at 0.5% from the prior week.
The survey, conducted since 1990, covers more than 75% of the retail residential mortgage applications.