Mortgage apps uptick spreads optimism on a refi recovery

Mortgage rates at their lowest level in three weeks led to an increase in borrowers’ demand for home loans last week, spreading some optimism in the industry in the first few weeks of 2024. To prove it, analysts are already discussing a potential refi recovery. 

Overall, mortgage applications rose by 10.4% in the week ending Jan. 12, compared to one week earlier, on a seasonally adjusted basis, per the Mortgage Bankers Association‘s (MBA) weekly mortgage applications survey. The MBA survey, conducted weekly since 1990, covers over 75% of all U.S. retail residential mortgage applications. 

“Mortgage rates declined across all loan types as Treasury yields moved lower last week on incoming inflation data, which helped to support a rise in mortgage applications. The 30-year fixed mortgage rate decreased six basis points to 6.75%, the lowest rate in three weeks,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement. 

The MBA survey shows the average interest rate for 30-year fixed-rate mortgages with conforming loan balances ($766,550 or less) decreased to 6.75% last week from 6.81% the prior week. Rates on jumbo loans (greater than $766,550) fell to 6.86% from 6.98% on a weekly basis.

At HousingWire’s Mortgage Rates Center, the Optimal Blue data shows the rate at 6.60% on Tuesday for conforming loans, down from 6.68% the previous Tuesday. Rates for jumbo loans were at 7.23%, down from 7.27% in the same period. 

Loan types 

According to Kan, purchase and refinance applications were up last week compared to a holiday-adjusted week. The conventional market heavily drove the increases.  

The MBA data shows that purchase apps increased by 9% from one week earlier on a seasonally adjusted basis, and refis were up 11% in the same period. Refis comprised 37.5% of the total applications last week, down from 38.3% the previous week.

The Federal Housing Administration’s (FHA) share of total applications decreased to 14.3% last week from 14.4% the week prior. The U.S. Department of Veterans Affairs (V.A.) share fell to 14.2% from 16.3% in the same period. The U.S. Department of Agriculture (USDA) share increased to 0.5% from 0.4%.

“Although purchase activity is lagging year-ago levels, refinance applications have improved from their recent low point and have been showing year-over-year gains, albeit at low levels. If rates continue to ease, MBA is cautiously optimistic that home purchases will pick up in the coming months,” Kan said. 

In a report to investors on Wednesday, analysts at Jefferies said mortgage rates remain “relatively high to the point where housing supply remains tight by historical standards.” 

Still, the analysts “view the forward curve and recent reductions in the 30-year mortgage rate as signs of life for a potential refi recovery.”

But don’t expect a refi boom like the one during the COVID years

“We do not anticipate a large cycle over the near/intermediate term and believe the rate-term refinance pipeline consists of loans originated since May 2022, or $2 trillion, while the majority of loans outstanding still have coupons well below today’s rates.”