The Mortgage Bankers Association today released it's survey on mortgage application activity for the week ending April 24th. The index, which measures both purchase and refinance volume as reported by mortgage bankers, commercial banks, and thrifts, fell from 1170.2 to 960.6 which is a decrease of 18.1%. The year over year decrease stands at 62.7%
Refinance transactions, down 21.9% to 5108.2 versus 6540.7 a week earlier, accounted for a majority of the drop. The purchase indeces were down as well with the conventional index decreasing 1.4% while the seasonally adjusted index decreased 0.6%. The government purchase index, however, saw a small gain of .8%. The total share of refinance volume fell to 75.3% from 79.7& a week earlier. This puts the refi index at its lowest level since the week ending March 13th.
The MBA also reports that the average contract interest for the same week fell to 4.62% from 4.73% from a week earlier on 30 yr fixed loans. 15 yr fixed loans also reported a slight decrease from 4.46% to 4.45% for the same time period.
Several factors have potentially contributed to the decrease in application volume despite the fall in interest rates. Lenders are still in the process of responding to the increase in demand among consumers and despite vast improvements in staffing, capacity is still lagging demand. In addition, many potential mortgage applicants are either delaying or seeking completely other means due to the numerous government initiatives. This not only requires time to research available programs, but in some cases, the potential applicants may end up seeking assistance from the government's modification program.
Many originators have also reported to Mortgage News Daily that a significant amount of their prospective clients do not have a pressing need to refinance, but rather, are waiting for the most opportune time to lock an interest rate and move forward. In addition, some note that continuing home price deterioration and a dismal employment situation is also sapping application demand.
Despite those limiting factors, the speed with which current mortgages are expected to be paid-off, a key metric for analyzing and forecasting future mortgage rates, is seen to be up 40% in May, which is reported in June. When these prepayment speeds increase, it generally leads to the creation of mortgage supply in a lower rate range. Bear in mind though that markets have already accounted for this in their pricing. The potentially significant variable is the degree to which the actual reading varies from this expectation of 40%. Faster, and rates may fall. Slower, and rates may rise.
