Rising mortgage rates squeezed the momentum out of the short-lived homebuying boom in early October as mortgage applications fell 17% for the week ending Oct. 11, according to the Mortgage Bankers Association (MBA).
The double-digit drop was registered in the MBA’s Market Composite Index, which measures mortgage loan application volume each week. The MBA’s Refinance Index took an even larger hit, falling 26% from the previous week. However, refinancing remained 111% above the same week in 2023. The seasonally adjusted Purchase Index fell 7% week over week.
The fall in activity was caused by the recent sizable spike in the 30-year home loan rate. According to Freddie Mac, that rate rose to an average of 6.32% as of Oct. 10, from a low of 6.08% two weeks earlier. The MBA estimated mortgage rates as reaching 6.52% over roughly the same timeframe, the highest level since August.
“The recent uptick in rates has put a damper on applications,” said Joel Kan, MBA’s vice president and deputy chief economist. “Refinance applications fell 26% to their lowest level since August, with comparable drops in both conventional and government refinances. This pushed the refinance share of applications back below 50% for the first time in over a month.
“Demand is holding up to an extent for prospective first-time buyers,” Kan also noted. “FHA purchase applications were little changed despite the increase in rates, as some first-time homebuyers remain in the market because of improving housing inventory conditions.”
In another blow to homebuyers, the MBA also found that mortgage credit availability decreased in September. Their Mortgage Credit Availability Index fell by 0.5% to a reading of 98.5 in September. A decline in the index indicates that lending standards are tightening. The index was benchmarked to 100 in March 2012. The availability of credit varied depending on the loan program being used. The conventional credit availability index fell by 1.7%, while the government index increased by 0.8% and the Jumbo index decreased by 2.6%. The conforming index remained unchanged.
“Mortgage credit availability tightened slightly in September as lenders remained cautious in this uncertain economic environment,” Kan said. “There was a decline in loan programs for cash-out refinances, jumbo and non-QM loans, including loans that require less than full documentation. Most component indexes decreased over the month, but the government index increased, driven by more offerings of VA streamline refinances.”
