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Mortgage apps dropped 2.3% for the week ending May 27, decreasing to the lowest level since December 2018, as measured by the Mortgage Bankers Association’s (MBA) Market Composite Index. 

“Mortgage rates fell for the fourth time in five weeks, as concerns of weaker economic growth and the recent stock market sell-off drove Treasury yields lower,” said Joel Kan, MBA’s associate vice president of economic and industry forecasting. “Mortgage applications decreased to its lowest level since December 2018, as the purchase market continues to struggle with supply and affordability challenges.”

The decline was propelled by the shrinking refi market led by larger decreases last week for the Federal Housing Administration (FHA) and the Veterans Affairs (VA) refinance applications, according to the MBA. The refinance index dropped 5% from the previous week and was 75% lower than the same period in 2021.

Refinance share of the mortgage activity declined to 31.5% of total applications from 32.3% from the previous week. 

Purchase applications last week were 14% lower than last year, with more activity in the larger loan sizes, said Kan. “Demand is high at the upper end of the market, and supply and affordability challenges are not as detrimental to these borrowers as they are to first-time buyers.”

The results are consistent with the MBA’s May forecast, which shows a significant drop in mortgage originations and home sales in 2022 than a year ago. Total originations are expected to tumble more than 35% to $2.5 trillion this year, from last year’s volume of $4 trillion. The MBA expects 5.93 million home sales this year, compared to 6.13 million in 2021. 

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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($642,000 or less) fell to 5.33% from 5.46% in the prior week. The average contract interest rate for a 30-year fixed-rate mortgage with jumbo-loan balances (greater than $642,000) also dropped to 4.93% from 5.02% a week earlier.

According to the MBA, the adjustable-rate mortgage (ARM) share of activity dipped to 8.7%, the FHA share of all applications fell to 10.8% from 11.3% the prior week, and the VA loan share dropped to 10.2% from 10.4 % a week earlier. 

The USDA share remained unchanged at 0.5% from the prior week.  

The survey, conducted since 1990, covers more than 75% of the retail residential mortgage applications.