Mortgage Matters: Mortgage Applications Face A Slight Decline

The rate is still below the historical average of 21.2% from 1985 to 2000, despite it being at a nearly 10-year high. The discrepancy between home value growth and wage growth is where…

by Brian Barker

Mortgage applications decreased 0.1 percent from the week prior, according to data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey.

One of the measures of mortgage loan application volume, the market Composite Index, fell 0.1 percent on a seasonally adjusted basis from the previous week. The index fell 2 percent on an unadjusted basis from the previous week. The Refinance Index fell 1 percent from the week prior as well.

The seasonally adjusted Purchase Index rose 1 percent from the previous week. The unadjusted Purchase Index fell 2 percent from the week before and was 2 percent higher than the same week a year ago.

The market experienced an increase in the Refinance share of mortgage activity from 38.7 percent of total applications during the previous week to 38.9 percent. There was a decrease to 6.1 percent of total applications in the adjustable rate mortgage (ARM) share of activity.

At 10.2 percent, the FHA share of total applications remained the same as the previous week. There was a decrease in the VA share of total applications from 10.5 percent the previous week to 10.0 percent this last week. The USDA share of total applications show an increase to 0.8 percent from 0.7 percent the previous week.

The market also experienced an increase to 4.80 percent from 4.78 percent in the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances  ($453,100 or less), with loan points falling to 0.43 from 0.46 (inclusive of the origination fee) for the 80 percent loan-to-Value ratio (LTV) loans. The effective rate was stable from the week prior.

There was a decrease from 4.68 percent to 4.67 percent in the average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances (greater than $453,100), with unchanged points at 0.30 (inclusive of the origination fee) for 80 percent LTV loans. There was a decrease in the effective rate from the previous week.

The average contract interest rate for 15-year fixed-rate mortgages fell to 4.23 percent from 4.24 percent, with points reducing from 0.48 to 0.45 (inclusive of the origination fee) for 80 percent LTV loans. It also experienced a fall in the effective rate from the week prior.

There was an increase in the average contract interest rate for 5/1 ARMs to 4.09 percent from 3.95 percent, with points falling to 0.31 from 0.34 (inclusive of the origination fee) for 80 percent LTV loans. The effective rate went up from the previous week as well.

Mortgage Affordability at Its Lowest since 2009

17.5% of a typical homeowner’s income is spent on their monthly mortgage payment, according to Zillow’s second-quarter affordability report. The median household’s income share hit its highest point since June 2009.

The rate is still below the historical average of 21.2% from 1985 to 2000, despite it being at a nearly 10-year high. The discrepancy between home value growth and wage growth is where this rising disconnect is originating from.

While median home values in the U.S. increased 8 percent, median household incomes only grew 2.8% during the previous year, according to the Bureau of Labor Statistics’ Consumer Expenditure Survey.

“Low mortgage rates have kept first-time homeownership and move-up homes within reach for many Americans, even as home values have soared to new heights. While mortgage rates remain low by historic standards, they are creeping upward, eating into what buyers can pay, and in a handful of pricey markets, affordability already looks unnervingly low,” said Aaron Terrazas, a senior economist at Zillow in a press release.

The problem is getting more grave as housing value drops, making homeownership proportionally more difficult going down the income scale.

“Among lower income buyers in those pricey markets, it is outright impossible to afford the mortgage on even a lower-priced home. As rates rise, both buyers and sellers will have to temper their expectations further,” Terrazas further added.

California has the top-five metro areas with the highest mortgage affordability rates, with San Jose standing at 53.5 percent, Los Angeles at 45 percent, San Francisco at 44.9 percent, San Diego at 37.9 percent and lastly Sacramento at 28.8 percent.

The Rust Belt conversely boasts the cities with homeowners spending the least on mortgage payments. Pittsburgh at 11.7 percent, Cincinnati as well as Indianapolis both at 12.5 percent leading the park.

Source: National Mortgage News

Brian Barker, Special to Corridor News
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