Mortgage application rates hits the lowest as interest rates continue to rise

Mortgage application rates dropped for the third week as the interest rates and high home prices take their toll on mortgage. The total mortgage application rate volume decreased 2.6 percent from the previous week according to a survey by the Mortgage Bankers Association.

The Market Composite Index, which is a measure of the mortgage loan application volume, fell 2.6 percent on a seasonally adjusted basis from the previous week. However, on an unadjusted basis, the index decreased 3 percent when compared with previous week which recorded a 1 percent higher than the same week a year ago.

The decrease in the rate was led by the purchase application volume dropping 3%, both on the seasonally adjusted and the unadjusted bases. The refinance share of the mortgage activity increased 37.1% of all the applications from 36.8 percent the previous week. On the other hand, the adjustable rate mortgage, ARM share increased its activities to 6.4 percent of the total applications.

“Rates rose slightly last week due to easing trade tension between the U.S. and Europe and Signals on Japanese and European monetary policy,” Joel Kan, MBA’s associate Vice President of Economic and Industry Forecasting.

Activity on the application remained slow which is in line with the weak trend trajectory on other housing indicators such as the home sales and the housing starts. In the past week, both the purchase option and the refinance activity has decreased. For the third week, purchase application index was at its lowest level as the low housing inventory and rising home prices continue be a real cause for alarm.

Of the total applications, the Adjustable rate loan activity recorded an increase of 0.1 percent, from 6.3% to 6.4%. For the FHA share of the total applications, the activity increased to 10.4 percent from 9.9 percent the previous week. The Veterans Affairs-guaranteed the loan applications which also rose up to 10.5 percent to 10.2 percent. The USDA share of the total applications remained unchanged at 0.8 percent when compared to a week before.

Despite the drop, the average contract interest rate for the 30-year-fixed rate mortgage with jumbo loans balances increased from 4.72 percent to 4.76 percent while the 30-year-fixed rate mortgage  backed by the FHA remained unchanged at 4.78 percent.

It is worth noting that the Mortgage Credit Availability increased significantly in July according to the Mortgage Credit Availability Index.  The MCAI increased 1.7 percent to 184.1 in July.  An increased in the MCAI indicates that lending standards are tightening while the increase in the index are an indication of the loosening of the credit. In 2012, the index was benchmarked to 100, making the year the base year. The conventional MCAI increased up to 4.2 percent while the Government MCAI decreased.

“Credit availability continued to expand, driven by an increase in conventional credit supply. More than half of the programs added were for jumbo loans, pushing the jumbo index to its fourth straight increase, and to its highest level since we started collecting these data. There was also continued growth in the conforming non-jumbo space, which reached its highest level since October 2013,” said Joel Kan

Take a look at the following component indices;

The conventional MCAI increased up to 4.2 percent