Mortgage Origination Rebound on Increase of Purchase Activity

December 4, 2018 by Melissa C. Martorella, Esq.

Although most Americans rushed out around the holiday to snap up Black Friday specials, the housing market also saw a boost in purchase activity as rates largely held steady. The MBA’s Weekly Mortgage Applications Survey for the week ending November 23, which included an adjustment for the Thanksgiving holiday, showed an increase of 1 percent in the refinance index.

Total refinance activity decreased from 38.5% of total applications the week previous, to 37.9% on the latest survey.

Purchases saw the biggest jump, with the seasonally adjusted purchase index increasing 9 percent from one week earlier. However, the unadjusted purchase index decreased by 28% from the previous week but was 2 percent higher than this time last year.

The MBA’s chief economist, Mike Fratantori, said that after “several weeks of market volatility,” the week before last’s drop in 30-year fixed mortgage rates seemed to motivate home buyers, with purchase applications going up 1.7 percent from this time last year.

“The rise in purchase activity was led by conventional purchase applications, which surged almost 12%, while government purchases were essentially unchanged over the week. This also pushed the average loan size for purchase applications higher, which likely meant there were fewer first-time homebuyers in the market [the week before last],” Fratantori said.

With fixed rate mortgage rates ticking upward over the past few months, homeowners are turning to lower adjustable-rate mortgages. Adjustable-rate mortgage activity increased from 7.3% to 7.9% of total applications from the week before last.

Both FHA-guaranteed loans and VA loan applications decreased two weeks ago, with FHA applications decreasing to 9.6% from 10.7% in the previous week, and VA applications down 0.7 percent. U.S. Department of Agriculture loan applications remained unchanged at 0.7% from the prior week.

With the Fed indicating they may be close to reaching a “neutral point” with regards to rate increases, fixed-rate mortgages were steady and even dipped slightly. The average contract interest rate for a 30-year conforming mortgage dropped four basis points to 5.12 percent. For 30-year mortgages with Jumbo loan amounts, loans above $453,100, the rate remained unchanged at 4.88%.

FHA-backed 30-year fixed rates increased three basis points to 5.11% from a week earlier, with the rate for 15-year mortgages remained unchanged at 4.53%.

The average contract interest rate for 5/1 adjustable-rate mortgages increased from 4.24 the previous week, to 4.29%.

Although mortgage rates are holding steady, the U.S. Census Bureau and Department of Housing and Urban Development reported seasonally adjusted annual sales of new homes were down 8.9 percent from September, and down 12 percent from October of last year. The seasonally adjusted estimate of new homes sales at the end of October was 336,000. These sales numbers indicated that we have a 7.4 month supply of housing at the current sales rate.

The downturn in new home sales should be taken as a reflection of the higher interest rates over the past several months, which is forcing many buyers into lower-priced homes.

Many economists predict that today’s strong job market and rising wages should continue to drive housing demand. As prices increase, affordability has been a significant constraint for homebuyers, but the glut in available housing could be a positive as we enter the new year.