Mortgage demand falls for the first time in five weeks as interest rates increase

Mortgage applications declined 0.7% on a seasonally adjusted basis during the week ending Dec. 13, driven by slight decline in refinance activity, according to data released Wednesday by the Mortgage Bankers Association (MBA).

The decline in applications broke a five-week streak of increases in mortgage demand. Rising mortgage rates last week were a likely factor that deterred potential borrowers from refinancing.

Market data at HousingWire‘s Mortgage Rates Center showed an average fixed rate of 6.87% for 30-year conforming loans on Wednesday, a slight increase from the week ending on Dec. 11. MBA’s report showcased a similar increase during the same time frame.

“Mortgage rates increased last week, leading to overall mortgage application activity decreasing for the first time in five weeks,” Joel Kan, MBA’s vice president and deputy chief economist, said in a statement.

“Conventional and VA purchase applications drove this week’s increase in purchase activity on a weekly and annual basis,” Kan added. “Buyers remained active in the purchase market, helped by gradually improving inventory conditions and a more positive outlook on the economy and job market. Refinance applications declined last week, largely driven by VA refinances that were down 17 percent after two weeks of gains.”

Refinance application activity across all loan types decreased 3% week over week, although it was still 41% higher compared to the same week in 2023. The refinance share of all mortgage activity sank by 10 basis points (bps) to 46.7%. Purchase activity was up 1% during the week.

Adjustable-rate mortgage (ARM) activity remained steady at 5.3% of all applications. Meanwhile, government loan activity increased across all loan types, excluding U.S. Department of Veterans Affairs (VA) loans. The Federal Housing Administration (FHA) share of total activity increased by 110 bps to 17.6%. VA loan activity fell 100 bps to 15.3% — including a large decrease in VA refi application volume. U.S Department of Agriculture (USDA) loans increased 10 bps to 0.5%.

MBA data also showed that average contract interest rates across loan types increased during the week. The average rate for 30-year fixed-rate loans for conforming balances (up to $766,550) rose by 8 bps to 6.75%. Rates for 30-year jumbo loans (balances above $766,550) grew by 7 bps to 6.86%. And the 30-year FHA loan rate increased by 2 bps to 6.49%.

Contract interest rates for 15-year fixed-rate loans increased by 3 bps to 6.15%, following a period of stagnation a week earlier. Rates for 5/1 ARMs increased by 22 bps to 6.03%.

Other industry data providers have highlighted recent increases in mortgage delinquencies due to factor such as higher interest rates. But the Federal Housing Finance Agency (FHFA) announced a decline in delinquencies across non-performing loans (NPLs) through Fannie Mae and Freddie Mac, indicating resiliency for these loan types.

Meanwhile, mortgage demand for new-home purchases grew by 7.2% year over year in November, according to the MBA.