Mortgage applications rebound after interest rates fall

Needless to say, the mortgage business has been through a lot in the last month or so. And that tumult continued in the last week as mortgage applications bounced back up after plummeting from record highs.

It all started in early March when applications hit a near 11-year high driven by record lows in interest rates. After that, applications fell for two straight weeks as the coronavirus continued to create instability in the economy.

But new data from the Mortgage Bankers Association shows that applications rebounded in the week ending March 27, 2020.

The Market Composite Index, a measure of mortgage loan application volume, rose 15.3% on a seasonally adjusted basis from one week earlier, MBA said. On an unadjusted basis, the Index increased 15% compared with the previous week, the MBA said.

Much of the increase was driven by refinances, which are
still running well above last year despite the havoc the coronavirus is causing
in the U.S.

According to the MBA, the Refinance Index rose 26% from the
previous week and was 168% higher than the same week one year ago.

The cause? Lower interest rates.

“Mortgage rates and applications continue to experience
significant volatility from the economic and financial market uncertainty
caused by the coronavirus crisis,” said Joel Kan, MBA’s Associate Vice
President of Economic and Industry Forecasting.

“After two weeks of sizeable increases, mortgage rates
dropped back to the lowest level in MBA’s survey, which in turn led to a 25% jump
in refinance applications,” Kan said.

But the news wasn’t as good for purchase applications, which
fell 11% from one week earlier.

“The bleaker economic outlook, along with the first wave of
realized job losses reported in last week’s unemployment claims numbers, likely
caused potential homebuyers to pull back,” Kan said. “Purchase applications
were down over 10%, and after double-digit annual growth to start 2020,
activity has fallen off last year’s pace for two straight weeks.”

Beyond the millions of job losses, Kan also noted that home
purchase activity is likely being slowed by social distancing protocols.

“Buyer and seller traffic – and ultimately home purchases –
will also likely be slowed this spring by the restrictions ordered in several
states on in-person activities,” Kan said.

On a state level, the impact of the virus is clear,
especially in New York, California, and Washington where applications are down
more than 30% compared to last year.

Overall, the refinance share of mortgage activity increased
to 75.9% of total applications, up from 69.3% the previous week. The
adjustable-rate mortgage share of activity decreased to 3.2% of total

Here is a more detailed breakdown of this week’s mortgage application data:

  • The Federal Housing Administration’s share of mortgage apps rose to 9.1% from 8.4% in the previous week.
  • The Department of Veterans Affairs’ share of applications remained at 12.5%.
  • The Department of Agriculture’s share of total applications also held steady the prior week’s 0.4%.
  • Mortgage interest rates for 30-year fixed-rate mortgages with conforming loan balances ($510,400 or less) fell to 3.47% from 3.82% the week before.
  • The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $510,400) remained at 3.84%.
  • The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.57% from 3.69%.
  • The average contract interest rate for 15-year fixed-rate mortgages decreased from 3.28% to 3.05%.
  • The average contract interest rate for 5/1 ARMs fell to 3.35% from last week’s 3.38%.

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