After Strong Rebound, Mortgage Applications Decreased at the End of January

An indication that housing activity continues to be in flux, mortgage applications decreased 9.0% from one week earlier, despite a decline in mortgage rates for the fourth-straight week. But experts say a rosier outlook is ahead with purchase activity expected to pick up as the spring homebuying season gets underway–this according to the latest Weekly Mortgage Applications Survey from the Mortgage Bankers Association’s (MBA) for the week ending January 27, 2023.

The week’s numbers:

The Market Composite Index, a measure of mortgage loan application volume, decreased 9.0% on a seasonally adjusted basis from one week earlier.
On an unadjusted basis, the Index increased 6% compared with the previous week.
The Refinance Index decreased 7% from the previous week and was 80% lower than the same week one year ago.
The seasonally adjusted Purchase Index decreased 10% from one week earlier.
The unadjusted Purchase Index increased 7% compared with the previous week and was 41% lower than the same week one year ago.
The refinance share of mortgage activity decreased to 31.2% of total applications from 31.9% the previous week.
The adjustable-rate mortgage (ARM) share of activity increased to 6.7% of total applications.
The FHA share of total applications increased to 12.0% from 11.9% the week prior.
The VA share of total applications decreased to 11.9% from 13.0% the week prior.
The USDA share of total applications remained unchanged at 0.6% from the week prior.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) decreased to 6.19% from 6.20%, with points decreasing to 0.65 from 0.69 (including the origination fee) for 80% loan-to-value ratio (LTV) loans. The effective rate decreased from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $726,200)increased to 5.99% from 5.92%, with points increasing to 0.48 from 0.41 (including the origination fee) for 80% LTV loans. The effective rate increased from the previous week.
The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 6.18% from 6.22%, with points decreasing to 0.99 from 1.10 (including the origination fee) for 80% LTV loans. The effective rate decreased from the previous week.
The average contract interest rate for 15-year fixed-rate mortgages decreased to 5.50% from 5.54%, with points increasing to 0.73 from 0.51 (including the origination fee) for 80% LTV loans. The effective rate increased from the previous week.
The average contract interest rate for 5/1 ARMs decreased to 5.38% from 5.44%, with points remaining at 0.83 (including the origination fee) for 80% LTV loans. The effective rate decreased from the previous week.

MBA’s take:

“Mortgage rates declined for the fourth straight week and have now fallen almost 40 basis points over the past month. Treasury yields were higher on average the previous week., while mortgage rates decreased, which was a sign of a narrowing spread between the two,” said Joel Kan, MBA’s vice president and deputy chief economist.

“The spread between mortgage rates and the 10-year Treasury has been abnormally wide since early 2022. Further narrowing of that spread is expected to put downward pressure on mortgage rates in the coming months. Overall application activity declined the previous week despite lower rates, which is an indication of the still volatile time of the year for housing activity. Purchase activity is expected to pick up as the spring homebuying season gets underway, bolstered by lower rates and moderating home-price growth. Both trends will help some buyers regain purchasing power.”