Often uttered after incidents where blame is felt to be equally shared, everyone knows the expression, "it takes two to tango." For the sixth consecutive week, mortgage applications have fallen. For the fifth consecutive week, mortgage rates have risen.
Who or what's to blame?
“Ten-year Treasury rates remain volatile and continue to put upward pressure on mortgage rates. The 30-year fixed rate last week increased to 6.81 percent, the highest level since July,” MBA Vice President and Deputy Chief Economist Joel Kan said, commenting on the latest update to the Mortgage Bankers Association (MBA)'s Market Composite Index, which fell by 10.8% the week ending Nov. 1.
The number of prospective borrowers applying for home loans fell throughout October, with the last reported increase at the end of September.
“Applications decreased for the sixth consecutive week," Kan added, "with purchase activity falling to its lowest level since mid-August and refinance activity declining to the lowest level since May. The average loan size on a refinance application dropped below $300,000, as borrowers with larger loans tend to be more sensitive to any given changes in mortgage rates.”
Low affordability continues to hamper home sales and new originations as mortgage demand bottlenecks with younger first-time homebuyers and renters stuck renting. A distorted October employment report provided little clarity as to the direction of future interest-rate easing and forecasts for new production that hinge on lower borrowing costs.
Meanwhile, many mortgage lenders believe market-moving rate relief may still be quarters away. Diminishing forecasts for new production is leading some lenders and servicers to hoard, instead of sell, their mortgage servicing rights (MSRs), eyeing the supplemental income.
The MBA’s Refinance Index fell by 19% as the refinance share of mortgage activity decreased to 39.9% of total applications from 43.1% the previous week. Refinances were still 48% higher than the same week one year ago.
The seasonally adjusted Purchase Index decreased 5% from one week earlier, while the adjustable-rate mortgage (ARM) share of activity increased to 7% of total applications.
The FHA share of total applications decreased to 15.5% from 16.4% the week prior; the VA share fell to 12.5% from 14.6% the week prior; the USDA share increased to 0.5% from 0.4% the week prior.
The market could see an increase in home equity lending if the Federal Reserve continues cutting interest rates, analysts with the ICE Mortgage Monitor say. The company’s Nov. 2024 report projected some degree of thawing in the housing market later this year.
