Mortgage Application Volume Sees Modest Uptick, but Refinancing Activity Remains Subdued

Key Points:

Mortgage application volume rose marginally last week, driven by an increase in purchase applications.
Refinancing applications continued to decline, reflecting the persistently high mortgage rates.
The average contract interest rate edged up slightly for both 30-year fixed-rate mortgages and 15-year fixed-rate mortgages.

Detailed Analysis:

Mortgage application volume exhibited a modest increase of 1.9% for the week ending June 9, 2023, according to the Mortgage Bankers Association (MBA). This slight uptick follows several consecutive weeks of declines.

The gain in application volume was primarily attributed to a surge in purchase applications, which jumped by 5%. Purchase applications now account for 57.2% of total mortgage activity. This surge suggests that prospective homebuyers are still active in the market, despite facing higher interest rates and rising home prices.

In contrast, refinancing applications fell by 3%, continuing their downward trend. Refinancing activity has been significantly impacted by the sharp increase in mortgage rates in recent months. The MBA's Refinance Index, which measures refinancing applications, dropped to its lowest level since March 2020.

The average contract interest rate for a 30-year fixed-rate mortgage edged up by 0.05% to 5.47%. The average rate for a 15-year fixed-rate mortgage also increased slightly to 4.58%. These increases are relatively small compared to the substantial rate hikes witnessed earlier this year.

Market Outlook:

The modest increase in mortgage application volume suggests that the housing market may be stabilizing after months of uncertainty. However, it remains to be seen whether the upward momentum in purchase applications will continue. The persistent high mortgage rates could still deter some potential buyers.

Refinancing activity is expected to remain subdued until mortgage rates decline significantly. Refinancing can be an attractive option for homeowners with existing mortgages at higher interest rates. However, with rates currently hovering around 5%, the savings may not be substantial enough to justify the refinancing costs.

Industry Experts' Commentary:

"The uptick in purchase applications is an encouraging sign, indicating that the market is adjusting to higher interest rates," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "However, refinancing activity remains depressed and will likely stay that way until rates come down."

"Prospective homebuyers should carefully consider their financial situation and consult with a mortgage professional to ensure they can afford a mortgage at today's interest rates," added Kan.

Implications for Homebuyers and Homeowners:

For homebuyers, the rising interest rates mean higher monthly mortgage payments. It is crucial to factor in these increased costs when budgeting for a new home. Buyers should also explore down payment assistance programs or consider adjustable-rate mortgages (ARMs) to mitigate the impact of higher rates.

Homeowners who are considering refinancing should weigh the potential savings with the associated costs and potential fees. Refinancing may not be a suitable option at current rates unless borrowers can secure a significantly lower interest rate.