The law of physics prevailed last week and mortgage applications, riding high for the previous two weeks, returned to earth.  The Mortgage Bankers Association (MBA) said its Market Composite Index, a measure of loan applications volume, was 3.2 percent lower during the week ended January 23 than it had been a week earlier.  On an unadjusted basis the index was down 12 percent.

It was another week in which seasonally adjusted numbers were tweaked to account for a holiday, in this case Martin Luther King Day, but the data was still an abrupt departure from the two full weeks that kicked off 2015.  During the week ended January 16 the seasonally adjusted index rose 14.2 percent on top of an increase of 46.7 percent the week before.  The unadjusted indices had been up even more dramatically, with increases of 17 percent and 119 percent respectively.

Applications for refinancing had been especially strong during the previous two weeks but those too fell, dragging the Refinance Index down by 5 percent while the share of applications that were for refinancing decreased from 74 percent to 72 percent. 

Refinance Index vs 30 Yr Fixed

Purchase mortgage volume was also down.  The seasonally adjusted Purchase Index, was off by 0.1 percent from the week ended July 16 and the unadjusted Purchase Index decreased by 4 percent and was 1 percent higher than during the same week in 2014.  The seasonally adjusted Government Index rose 9.2 percent to its highest level since July 2013.

Purchase Index vs 30 Yr Fixed

The FHA share of total applications increased to 9.1 percent this week from 8.0 percent last week and VA loan applications had a 10.7 percent share, up from 9.4 percent.  USDA's share increased to 0.7 percent from 0.6 percent.

The downturn in applications could be accounted for in part by an increase in both average contract and effective interest rates for all products tracked by MBA.  The average contract rate for 30-year fixed-rate mortgages (FRM) with conforming balances of $417,000 or less increased to 3.83 percent with 0.26 points from 3.80 percent with 0.29 percent.  The jumbo version of the 30-year FRM (mortgage balances above $417,000) rose one basis point to 3.87 percent while points increased to 0.33 from 0.23.

The rate for 30-year FRM backed by the FHA increased to 3.71 percent from 3.66 percent, with points decreasing to 0.07 from 0.15.

Fifteen-year FRM had an average rate of 3.15 percent with 0.28 point.  The previous week the rate had averaged 3.10 percent, with 0.29 point.

Adjustable rate mortgages (ARM) pulled only a 5.7 percent share of total applications, down from 6.7 percent.  The average contract interest rate for 5/1 ARMs increased to 2.96 percent from 2.87 percent, with points increasing to 0.42 from 0.41

MBA derives its rate and volume information from its Weekly Mortgage Applications survey which it has conducted since 1990 among mortgage bankers, commercial banks and thrifts.  The survey covers over 75 percent of all U.S. retail residential mortgage applications.  The base period and value for all indexes is March 16, 1990=100 and interest rate quotes assume a loan with an 80 percent loan-to-value ratio; points include the origination fee.  .

Note: The MBA made slight adjustments to the past two weeks of data as follows: "Due to a revised data submission, results for week ending January 9, 2015 and January 16, 2015 were amended. The seasonally adjusted market index for week ending January 9, 2015 increased 46.7 percent rather than as initially reported at 49.1 percent. The seasonally adjusted purchase index increased 21.2 percent rather than as initially reported at 23.6 percent. The refinance index increased 63.9 percent rather than as initially reported at 66.4 percent. The seasonally adjusted market index for week ending January 16, 2015 increased 16.1 percent rather than as initially reported at 14.2 percent. The seasonally adjusted purchase index decreased 0.6 percent rather than as initially reported as decreasing 2.5 percent. The refinance index increased 24.2 percent rather than as initially reported at 22.3 percent."