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Rate drops help June see strong mortgage application growth

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Inside the Beltway
Wednesday, July 3, 2019

June saw a major uptick in applications flanked by a notable drop in rates across the board, according to data compiled by the Mortgage Bankers Association (MBA) in its Weekly Mortgage Application Surveys published throughout the month.

After relatively little movement in May, applications jumped by a seasonally adjusted 26.8 percent – 38 percent on an unadjusted basis – the week ending June 7. There was a slight dip in the seasonally adjusted application volume a week later (down 3.4 percent) followed by a 1.3 percent uptick the week ending June 21.

The latest survey results showed virtually no change in applications and rates the week ending June 28 on a seasonally adjusted (down one basis point) or unadjusted basis (down three basis points).

“Purchase applications picked up slightly last week, as conventional and government activity were each up around 1 percent,” MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said in a press release following the June 26 data release. “Furthermore, in continuation of the gradual growth trend seen throughout the first half of 2019, purchase activity was almost 10 percent higher than a year ago. A still-strong job market, improving affordability and lower mortgage rates continue to support growth.”

Following the spike in mortgage applications that kicked off the month, Kan stated that the coinciding dip in rates was being driven by international trade tensions between the U.S. and China and Mexico.

“Mortgage rates for all loan types fell by a sizeable margin for the second straight week, pulled down by trade tensions with China and Mexico, the financial markets reacting to more bearish communication from several Fed officials, and weaker than expected hiring in May,” Kan said.

Kan also noted that the Refinance Index increased 47 percent the week ending June 7 to its highest level since 2016. Refinances accounted for 49.8 percent of total applications for the week, compared with 42.2 percent the week before. For the week ending June 28, Kan noted that despite a slight dip in conventional refinances during the week, government refinances picked up, with refis backed by the Federal Housing Administration (FHA) increasing 17 percent.

Kan attributed the pullback in applications the week ending June 14 to an increase in mortgage rates for 30-year fixed-rate loans.

“After a six-week streak, mortgage rates for 30-year loans increased slightly, which led to a pullback in overall refinance activity,” Kan said at the time of the June 14 release. “Borrowers were sensitive to rising rates, but the refinance share of applications was still at its highest level since January 2018.”  

MBA reported the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($484,350 or less) dropped from 4.23 percent to 4.07 percent from the end of May to the week ending June 28. The largest drop (11 basis points) during that period occurred the week ending June 7.

The average contract interest rate for a 30-year fixed-rate jumbo mortgage loan balance (greater than $484,350) registered at 4 percent in the week ending June 28 – unchanged from the previous week but nine basis points lower than the end of May.

For a 30-year fixed-rate mortgage backed by FHA, the average interest rate dropped from 4.24 percent to 3.97 percent during the course of the month, with a 15-basis point drop the week of June 7 and, more recently, a four-basis point drop the week ending June 28.

The drop in average rates was not as pronounced for 15-year fixed-rate mortgages over the course of the month. Rates began the month at 3.53 percent and ended at 3.42 percent after a two-basis point increase in the latest survey.  

After dropping from 3.62 percent to 3.43 percent to start the month, the average contract interest rate for 5/1 adjustable-rate mortgages rebounded to 3.50 percent the week ending June 21 before settling at 3.46 percent in the latest survey.

Commenting on the most recent survey results, Kan said, “Now at almost the halfway mark of 2019, we have generally seen a stronger purchase market than last year, despite still-tight existing inventory and insufficient new construction.” 

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