Mortgage apps decline amid a volatile mortgage market

Borrower demand for home loans increased in the first three weeks of 2023, prompting optimism among mortgage industry executives and loan officers. But make no mistake – there are signs of change on the horizon.

“Overall application activity was down last week despite lower rates, which is a sign of a still weak time of year for housing activity,” Joel Kan, Mortgage Bankers Association (MBA) vice president and vice president economist, said in a statement.

According to the MBA, mortgage applications for the week ending January 27 were down 9% compared to the previous week. The demand for purchase loans decreased by 10 percent during the same period. Meanwhile, applications for refinancing decreased by 7 percent.

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Meanwhile, 30-year fixed-rate mortgages with credit balances ($726,200 or less) fell one basis point to 6.19%. This is the fourth straight week of declines, resulting in mortgage rates nearly 40 basis points lower than a month ago. For jumbo loans (greater than $726,200), rates increased this week from 5.92% to 5.99%.

“Treasury yields were higher on average last week, while mortgage rates were lower, which was a sign of the narrowing of the spread between the two,” Kan said. “The spread between mortgage rates and the 10-year Treasury has been abnormally wide since early 2022 – further narrowing is expected to put pressure on mortgage rates in the coming months.”

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Seasons ahead

Industry experts believe that the buying market will recover in the spring, even if it is weak.

“Buying activity is expected to be bolstered by lower rates and softening home price growth as the spring home buying season begins. Both trends will help some buyers regain purchasing power. start,” said Kan.

Nik Shah, CEO of Home LLC., said buyers are tired of waiting for lower prices and rates.

“So, they’re getting 5-year and 7-year fixed-rate mortgages instead of 30-year fixed-rate mortgages,” Shah said.

MBA data shows that refinances accounted for 31.9% of total applications for the week ending Jan. 27, followed by FHA (12% of the total), VA (11.9%) and ARM (6.7%). The average contract interest rate for 5/1 ARMs fell to 5.38% last week, from 5.44% the previous week.

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According to Shah, homeowners are not selling because they are locked in at low rates.

“Most of the addresses are destroyed houses or new buildings,” he said. “Homes are already starting to receive multiple offers in many markets. We will learn more this Summer rush.”
Shah’s predictions are that there will be a 4% increase in house prices by 2023 – but that’s only if Federal Reserve turns around and starts lowering rates after the current tight monetary policy hurts the labor market.


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