Mortgage apps reach the lowest level in 25 years

Mortgage demand continued its downward trend last week, reaching the lowest level in 25 years, according to the latest survey from the Mortgage Bankers Association (MBA).

That indicates lenders may still face substantial declines in their origination volume in the last quarter of 2022. Depositary banks such as JPMorgan ChaseWells Fargoand Bank of America have already experienced double-digit contraction in their production in the third quarter, which is also expected of their non-depository peers.

The MBA survey shows that the mortgage composite index for the week ending Oct. 14 fell 4.5% from the prior week and 68% compared to the same period in 2021. The survey, conducted weekly since 1990, covers 75% of all U.S. retail residential mortgage applications.

The refinance index decreased 6.7% from the week prior and was 86% lower than the same week one year ago. Meanwhile, the seasonally adjusted purchase index declined 3.7% from one week earlier and was down 37% from this time last year.

“The speed and level to which rates have climbed this year have greatly reduced refinance activity and exacerbated existing affordability challenges in the purchase market,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. “Mortgage applications are now into their fourth month of declines, dropping to the lowest level since 1997.”

The survey shows that the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 6.94% last week, the highest level since 2002, from the previous week’s 6.81%. Rates for jumbo loan balances (greater than $647,200) went from 6.25% to 6.31% in the same period.

But another index measures rates even higher. According to Mortgage News Daily, the average 30-year fixed rate mortgage on Tuesday was 7.15%.

Kan said that with rates at such high levels, the ​​adjustable-rate mortgage share rose to 12.8% of all applications last week, which was the highest share since March 2008. Rates for 5/1 ARMs increased to 5.65% last week from the prior week’s 5.56%

“ARM loans continue to remain a viable option for borrowers who are still trying to find ways to reduce their monthly payments,” Kan said.

The MBA survey also shows that surging rates have wiped out demand for refinancing, with its share of mortgage activity declining to 28.3% last week from 29% of total applications in the prior week.

The FHA share of total applications slightly increased to 13.6% from 13.5% the week prior. The VA share fell from 10.9% to 10.7%. Meanwhile, the USDA share remained at 0.5% in the same period.