Flattening rates fail to bring in mortgage borrowers

Home lending activity slowed for the fourth time in five weeks, even as interest rates tapped on the brakes after their recent acceleration, according to the Mortgage Bankers Association.

The MBA's Market Composite Index, a measure of weekly application volume based on surveys of the trade group's members, pulled back a seasonally adjusted 5.6% for the period ending Feb. 23. The decline follows drops of 10.6% and 2.3% the previous two weeks. On a year-over-year basis, volumes were also 8.6% lower. 

Along with a recent surge in mortgage rates, a tight existing-home market continues to stymie lenders. The 30-year conforming fixed-rate for loans with balances below $766,550 in most markets edged down to 7.04% from 7.06% in the prior survey. Borrower points went in the other direction, rising to 0.67 from 0.66 for 80% loan-to-value ratio applications.

But a 2-basis point fall wasn't enough to draw in borrowers. Both purchases and refinances dropped. "Higher rates in recent weeks have stalled activity," said Mike Fratantoni, MBA senior vice president and chief economist, in a press release. 

But a strong new-home market shows buyer enthusiasm exists, as evidenced by MBA's most recent survey of homebuilder mortgage affiliates, he said. January data saw applications for new single-family construction up over 19% annually and 38% from December. 

"This disparity continues to highlight how the lack of existing inventory is the primary constraint to increases in purchase volume. However, mortgage rates above 7% sure don't help."

Redfin's home buyer demand index also points to signs of engaged consumers as the spring gets underway. The index, which tracks tour requests and other queries to the brokerage's agents, increased from January levels, although severe weather helped suppress activity that month.

But curious consumers didn't drive lending last week, as the MBA's seasonally adjusted Purchase Index dipped 4.5% from seven days earlier. It also landed 11.9% lower from the same survey period in 2023. 

The Refinance Index experienced a larger 7.3% weekly decline, and finished 1.1% below year-ago levels, with a majority of homeowners currently holding on to more favorable rates. Refinance applications shrank to a 31.2% share relative to overall activity, down from 32.6% seven days earlier. 

Federally backed lending slowed more compared to the overall market, with the Government Index taking a seasonally adjusted 7.5% fall. The slower pace of lending, particularly for refinances, led to a smaller portion of applications sponsored by government agencies. 

Federal Housing Administration-guaranteed mortgages garnered 13% of volume, decreasing from 13.2% in the previous survey. Meanwhile, loans backed by the Department of Veterans Affairs took a 11.7% share compared to 12.1% seven days earlier. The portion of activity coming from U.S. Department of Agriculture programs remained the same at 0.5% week over week.

Interest rate movements among MBA lenders hovered, for the most part, near where they were in the prior survey period in all categories the association tracks. 

The average contract rate of the 30-year fixed jumbo mortgage rose 4 basis points to 7.2% from 7.16%. Points jumped to 0.57 from 0.45 the previous week for 80% LTV loans.

The 30-year FHA-backed fixed contract rate decreased to 6.86% from 6.91% seven days earlier. A typical FHA borrower used 0.99 worth of points compared to 1.03 the prior week.

The average of the 15-year fixed mortgage took the week's largest upward climb, rising 9 basis points to 6.7% from 6.61%. Points decreased to 0.68 from 0.77.

The 5/1 adjustable-rate mortgage averaged 6.33%, sliding from 6.37% in the previous survey period. Points taken out for these types of loans also fell to 0.58 from 0.71. 

Overall ARM activity came in at a 7.5% share relative to total volume, inching up from 7.4% one week prior. The share grew, even as the ARM Index slipped 4.1%.