2023 Closes With Decline in Mortgage App Volume

According to the Mortgage Bankers Association (MBA), mortgage applications decreased 9.4% from two weeks earlier, according to data from the MBA’s Weekly Mortgage Applications Survey for the week ending December 29, 2023. Note that the MBA’s results included adjustments to account for the holiday season.

The holiday adjusted Refinance Index decreased 18% from two weeks ago, and the unadjusted Refinance Index decreased 43% from two weeks ago; both measures were 15% higher than the same week one year ago. The seasonally adjusted Purchase Index decreased 5% compared with two weeks ago. The unadjusted Purchase Index decreased 34% compared with two weeks ago and was 12% lower than the same week one year ago.

“Markets continued to digest the impact of slowing inflation and potential rate cuts from the Federal Reserve, helping mortgage rates to stay at levels close to the lowest since mid-2023. The 30-year fixed mortgage rate edged higher last week and ended 2023 at 6.76%, over a percentage point lower than its recent peak of 7.9% in October 2023,” said Joel Kan, MBA’s VP and Deputy Chief Economist. “The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response, with the overall level of purchase activity 12% lower than a year ago. Refinance applications were still at very low levels, but were 15% higher than a year ago.”

The refinance share of mortgage activity decreased to 36.3% of total applications from 39.4% the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 6% of total applications.

By loan type, the FHA share of total applications decreased to 14.5% from 15% the week prior. The VA share of total applications decreased to 14.6% from 17.3% the week prior. The USDA share of total applications increased to 0.5% from 0.4% the week prior.

In addition to affordability issues, one of the struggles encountered by those seeking homes in 2023 was the lack of supply. However, that trend may be changing as evidenced the latest National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) which found that the recent slide in mortgage rates has helped end a four-month decline in builder confidence, along with recent economic data signal improving housing conditions heading into the new year. The Index found builder confidence in the market for newly built single-family homes rose three points to 37 in December, reversing the trend of the previous four months.

“With mortgage rates down roughly 50 basis points over the past month, builders are reporting an uptick in traffic as some prospective buyers who previously felt priced out of the market are taking a second look,” said NAHB Chairman Alicia Huey. “With the nation facing a considerable housing shortage, boosting new home production is the best way to ease the affordability crisis, expand housing inventory, and lower inflation.”

CoreLogic Chief Economist Dr. Selma Hepp added, “While housing starts have been dragging, the improved outlook for 2024 reflects expectations that lower mortgage rates will boost builder confidence and potentially lead to more construction across the U.S. Lower mortgage rates will also help improve affordability, which has fallen to some of the lowest levels in history.”

The latest Pending Home Sales Index (PHSI) from the National Association of Realtors (NAR)–a forward-looking indicator of home sales based on contract signings–remained unchanged month-over-month at 71.6 in November. Year-over-year, pending transactions were down 5.2%. An Index reading of 100 is equal to the level of contract activity in 2001. NAR, in its analysis, found that the Northeast, Midwest, and West all posted monthly gains in transactions, while the South recorded a loss. All four U.S. regions registered year-over-year declines in transactions.

‘The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months to come,” added Kan.

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