Mortgage application volume for the week ending June 3 dropped 6.5%, sliding to the lowest level in 22 years, driven by weakness in purchase and refinance applications.
Despite the recent decline in mortgage rates, they were not low enough to spur refinance activity, which led to the decline of the Mortgage Bankers Association‘s (MBA’s) Market Composite Index. The refinance index dropped 6% from the previous week and was 75% lower than the same week a year ago. According to the MBA, the seasonally adjusted purchase index fell 7% from one week earlier.
“Weakness in both purchase and refinance applications pushed the market index down to its lowest level in 22 years,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting.
“The 30-year fixed rate increased to 5.4% after three consecutive declines. While rates were still lower than they were four weeks ago, they remained high enough to still suppress refinance activity. Only government refinances saw a slight increase last week,” Kan said.
Purchase mortgage rates, after hitting a 13-year high of 5.27% in May, fell for three consecutive weeks, according to the Freddie Mac PMMS. Rates last week averaged 5.09%, essentially flat from the prior week, but significantly higher than the 2.99% rate during the same period last year.
The refinance share of mortgage activity rose to 32.2% of total applications from 31.5% from the week prior, according to the MBA.
“The purchase market has suffered from persistently low housing inventory and the jump in mortgage rates over the past two months. These worsening affordability challenges have been particularly hard on prospective first-time buyers,” Kan added.
In May, the inventory of homes for sale rose 8%, marking the first rebound since June 2019. Compared to May 2020, the inventory of active listings was still down 48.5%, meaning there are still only half as many homes available, according to Realtor.com‘s monthly report. The median national home price also climbed to an all-time high of $447,00 last month, jumping 35.4% year over year.
The average contract interest rate for 30-year-fixed-rate mortgages with conforming loan balances ($642,000 or less) rose to 5.40% from 5.33%. The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $647,000) rose to 4.90% from 4.93%.
The adjustable-rate mortgage (ARM) share of activity decreased to 8.2% of total applications. The Federal Housing Administration (FHA) share of all applications rose to 11.3% from 10.8% the prior week, and the Veterans Affairs (VA) loan share climbed to 11.4% from 10.2% a week earlier.
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.