The rate drop that kicked in immediately after the June 23 Brexit vote in the United Kingdom was reflected, dramatically so, in the volume of mortgage applications the following week. The Mortgage Bankers Association's (MBA's) Market Composite Index, a measure of that volume, soared during the week ended July 1. And rates fell even farther.
The Index rose 14.2 percent on a seasonally adjusted basis compared to the week ended June 24 and was up 14 percent unadjusted. The increase was driven largely by a 21 percent surge in the Refinance Index while the refinance share of applications rose 3 percentage points to 61.1 percent. It was the highest share of applications for refinancing since February.
The near record low rates also stimulated, although to a lesser extent, purchase mortgage applications. That index rose 4 percent from the previous week on both a seasonally adjusted and an unadjusted basis. The unadjusted Purchase Index was 23 percent higher than during the same week in 2015.
Refi Index vs 30yr Fixed
Purchase Index vs 30yr Fixed
"Interest rates continued to drop last week as markets assessed the impact of Brexit, downgrading the likelihood of additional rate hikes by the Fed, and mortgage rates for 30-year conforming loans dropped to their lowest level in over 3 years," said Mike Fratantoni, MBA's Chief Economist. "In response, refinance application volume jumped almost 21 percent last week to its highest level since January 2015."
The FHA share of total applications decreased to 9.5 percent from 10.6 percent the previous week while the VA share was up from 12.2 percent to 12.8 percent. The USDA share dipped by 0.1 point to 0.6 percent.
Contract interest rates in most cases fell to multi-year lows and effective rates were all below those of the previous week. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,000 or less) were at the lowest level since May 2013, 3.66 percent. The previous week the rate, was 3.75 percent. Points decreased to 0.32 from 0.36.
Interest rates for 30-year FRM jumbo loans with balances greater than $417,000 were back to January 2011 levels, decreasing from 3.74 percent to 3.67 percent. Points dropped to 0.24 from 0.34.
A decline of 6 basis points took the average FHA contract rate for a 30-year FRM back to levels last seen in May 2013, 3.56 percent. Points decreased to 0.31 from 0.37.
Rates for 15-year FRM were also back to May 2013 levels, decreasing from 3.02 percent to 2.96 percent. Points fell to 0.32 from 0.38.
The market share of adjustable rate mortgages (ARMs) decreased to 5.6 percent from 5.9 percent a week earlier. The average contract interest rate for 5/1 ARMs retreated to April levels, down from 2.88 percent to 2.85 percent. Points decreased from 0.30 to 025.
MBA's Weekly Mortgage Applications Survey, which covers over 75 percent of all U.S. retail residential mortgage applications has been conducted since 1990. Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate data is based on mortgages with an 80 percent loan-to-value ratio and points that include the origination fee.
