As potential buyers struggle with supply and affordability challenges, the refinance market continues to shrink.
Mortgage Applications Fall to Lowest Level Since December 2018
For the week ending May 27, mortgage applications dropped -2.3%, according to the Mortgage Bankers Association (MBA).
“Mortgage rates fell for the fourth time in five weeks, as concerns of weaker economic growth and the recent stock market sell-off drove Treasury yields lower,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Mortgage applications decreased to its lowest level since December 2018, as the purchase market continues to struggle with supply and affordability challenges.”
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Purchase applications declined -14% y/y in the week ending May 27.
Shrinking Refi Market Seen as Cause of Overall Decline in Mortgage Activity
The refinance share of mortgage activity during the week ending May 27 dropped to 31.5% of total applications from 32.3% the previous week. According to the MBA, shrinking refi demand among Federal Housing Administration (FHA) and Veterans Affairs (VA) mortgages spurred the week’s refi decline. The refinance index fell -5% from the previous week and was -75% lower y/y.
Decline in Mortgage Activity Consistent with MBA’s May Forecast
In May 2022, the MBA projected that the refinance share of total mortgage applications would steadily decrease throughout the year from 45% in Q1 to 29% in Q2, to 27% in Q3 and stabilize at 27% in Q4 2022.
The MBA expects total mortgage originations to tumble by more than 35% to $2.5T this year from 2021’s volume of $4T. The MBA expects 5.93M home sales in 2022, down from 6.13M in 2021.
Interest Rate Changes
The average contract interest rate for a 30-year fixed-rate mortgage with a conforming loan balance ($642,000) slid to 5.33% from 5.46% the previous week. The average contract interest rate for a 30-year fixed-rate mortgage with jumbo-loan balance dropped to 4.93% from 5.02% the week before.
MBA’s Kan said, “Demand is high at the upper end of the market, and supply and affordability challenges are not as detrimental to these borrowers as they are to first-time buyers.”
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Thanks to the Mortgage Bankers Association and HousingWire.
