The Mortgage Bankers Association (MBA) credited a strong start to the spring buying season for a big gain in mortgage applications during the week ended March 22. However, it appears that a surge in refinancing due to declining interest rates was an equal if not more important driver.
MBA's Market Composite Index, a measure of mortgage application volume, increased 8.9 percent on a seasonally adjusted basis during the week and was 9 percent higher unadjusted. It was the third consecutive increase and the largest in a non-holiday related week since July 2015.
The Refinance Index increased 12 percent from the previous week and applications for refinancing accounted for 40.4 percent of the total. The prior week the refinancing share was 39.2 percent.
The seasonally adjusted Purchase Index gained 6 percent. The unadjusted version was 7 percent higher than during the week ended March 15 and up 4 percent from the same week last year.
Refi Index vs 30yr Fixed
Purchase Index vs 30yr Fixed
"The spring buying season is off to a strong start. Thanks to an unexpectedly large drop in mortgage rates following last week's FOMC (Federal Open Market Committee) meeting, purchase applications jumped 6 percent and refinance applications surged over 12 percent," said Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting. "Rates dropped across all loan types, and the 30-year fixed-rate mortgage is now more than 70 basis points below last November's peak. The average loan size increased once again to new highs for both purchase and refinance loans, as borrowers with - or seeking - larger loans tend to be more reactive to the drop in rates."
The loan sizes referenced by Kan were $346,700 for all loans, up more than $15,000 from the previous week, and a $335,900 average for purchase mortgages.
The FHA share of total applications slipped from 10.4 percent to 9.3 percent and VA loans from 10.6 percent to 10.4 percent. The USDA share of total applications remained at 0.6 percent.
Interest rates declined for all loan types on both a contract and an effective basis. The average contract rate for 30-year fixed-rate mortgages (FRM) with origination balances at or below the conforming limit of $484,350 decreased to 4.45 percent from 4.55 percent. Points retreated to 0.39 from 0.42.
Thirty-year FRM with jumbo balances above the conforming limit had an average rate of 4.35 percent with 0.27 point. The prior week the rate was 4.37 percent with 0.23 point.
The average rate for 30-year FRM backed by the FHA dropped by 11 basis points to 4.48 percent. Points dipped to 0.48 from 0.50.
The average contract rate for 15-year FRM decreased to 3.87 percent from 3.97 percent. Points increased to 0.47 from 0.40.
The largest change in contract interest rates was for 5/1 adjustable rate mortgages (ARMs), a 22-basis point decline to 3.77 percent. Points ticked up to 0.30 from 0.29. The ARM share of activity increased to 7.8 percent of total applications from 7.2 percent the previous week.
MBA's Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.