Amid growing concerns about housing affordability, the latest data from the Mortgage Bankers Association’s (MBA) weekly mortgage applications survey show a surge in mortgage refinancing, a week-to-week increase of 39% on a seasonally adjusted basis. The increase is contemporaneous with the fourth consecutive week of mortgage rates’ declining. Despite the widespread decrease in mortgage rates, changes in purchasing activity (i.e., purchases on new or existing homes) were not as sensitive to the drop as were applications to refinance.
The last 20 years’ data of the MBA’s Purchasing and Refinancing Indexes show that refinancing activity of homes is often volatile. In early 2000, refi and purchase applications were almost the same but, the refinancing index climbed to multiples of the purchasing index over the next few years. The current period shows this divergence, as higher levels than the current level of refinancing had not been seen since late 2016.
The data also show that purchase applications are almost 10% higher than they were a year ago, that refinance applications are 58% higher on a year-over-year basis, and that, combined, both purchase and refi applications are almost 30% higher than they were a year ago. Despite the tight lending environment of 2019, as anticipated by banks’ senior loan officers in the Federal Reserve’s Senior Loan Officer Opinion Survey, the data show a rise in applications on a year-to-date and year-over-year basis, which may partially offset tighter lending standards. The mortgage applications for purchase index is usually a leading indicator for forthcoming home sales, but the latter may be conflated by other factors, such as all-cash sales. The prior few months’ data lean less to such a conclusion, as the upward trend of the purchase index in January 2019 was subsequently followed up by increases in new and existing home sales in February.