It is sad to say, but the good news can't last forever and the recent improvement in mortgage application volume, especially for purchase mortgages, proved that point last week.  The Mortgage Bankers Association (MBA), in its last report of the year, said that its Market Composite Index, a measure of that volume, dropped by 5.8 percent on a seasonally adjusted basis during the week ended December 14.  It was the first negative report in a month.  On an unadjusted basis the index was down 7.0 percent as was the seasonally adjusted Purchase Index.  The unadjusted Purchase Index dropped 10 percent but was 2.0 percent higher than during the same week in 2017.

Refinancing, which has been on a recent roll lost 2 percent from its index, but the share of applications that were for refinancing rose from 41.5 percent to 43.5 percent, the largest share since February. Joel Kan, MBA's Associate Vice President of Economic and Industry Forecasting noted that "With rates continuing to slide lower, refinance borrowers with larger loan balances seemed more apt to take action. The average loan balance for refinance loans increased to its highest level [$284,900] since September 2017." 


Refi Index vs 30yr Fixed



Purchase Index vs 30yr Fixed



Kan continued, "Despite mortgage rates falling across the board last week to their lowest levels in three months, mortgage applications also declined, as more potential borrowers likely stayed away because of ongoing financial market volatility and economic uncertainty. Purchase applications decreased almost seven percent over the week and refinances decreased around two percent, led by a larger decline in government refinances compared to conventional refinances." 

The FHA share of total applications decreased to 10.4 percent from 10.8 percent and VA applications declined 4 basis points to 9.9 percent. The USDA share of total applications ticked down from 0.7 to 0.6 percent. The origination balance for all loans averaged $298,700 and purchase loans averaged $309,400.

Contract interest rates for all loan products rolled back to their September levels and effective rates moved lower across the board. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination loan balances at or below the conforming limit of $453,100 declined to 4.94 percent from 4.96 percent and points decreased to 0.43 from 0.48. 

The average rate for jumbo FRM, loans with origination balances above the conforming limit, was 4.74 percent with 0.26 point.  The prior week the rate was 4.80 percent with 0.33 point.

Thirty-year FRM with FHA guarantees had a contract rate of 4.95 percent, down 2 basis points while points declined to 0.51 from 0.55.

The average contract interest rate for 15-year fixed-rate was 4.37 percent compared to 4.41 percent during the week ended December 7.  Points fell to 0.37 from 0.44

The 5/1 adjustable rate mortgage (ARM) had an average rate of 4.17 percent, down from 4.24 percent but points did rise to 0.42 from 0.34. The ARM share of activity increased to 7.9 percent of total applications from 7.6 percent.

MBA offices will be closed from Monday, December 24 until Wednesday January 2, 2019 and the association will not issue an application volume report next week.  A report covering the two weeks will be published on Thursday, January 3.

MBA's Weekly Mortgage Applications Survey has 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.