Mortgage Applications Hit Lowest Point in 28 Years - September 2023 Trends & Rates

Mortgage applications have fallen sharply, reaching their lowest point in 28 years despite a recent decrease in 30-year fixed mortgage rates. According to the Mortgage Bankers Association's Weekly Mortgage Applications Survey for the week ending September 1, 2023, applications dropped by 2.9%, signaling continued buyer hesitation amid challenging market conditions.

Highlights from the Latest Mortgage Market Report

• Mortgage applications declined by 2.9% compared to the previous week, marking the lowest level since December 1996.
• The refinance index fell to its lowest since January 2023, reflecting a significant reduction in refinancing activity.
• High mortgage rates and scarce housing inventory continue to deter potential homebuyers.

Mortgage Rates Remain Elevated Compared to Last Year

Although mortgage rates dipped slightly last week, they remain over a full percentage point higher than the same period in 2022. Joel Kan, MBA's Vice President and Deputy Chief Economist, attributes the drop in mortgage applications primarily to these persistently high rates.

"The refinance index reached its lowest point since January 2023, largely driven by a 6% decline in conventional refinances," Kan explained.

Buyers Hesitate Amid High Rates and Limited Inventory

The unadjusted mortgage application index decreased by 5% from the previous week. Specifically, the refinance index dropped 5% week-over-week and 30% year-over-year. The seasonally adjusted purchase index fell by 2% compared to the prior week, with an unadjusted 5% decline and a 28% decrease from last year.

Government-backed loan applications showed mixed trends: FHA loan applications rose to 13.7% from 13.2%, VA loan applications slightly decreased from 11.6% to 11.3%, and USDA loan applications inched up from 0.4% to 0.6%.

Kan noted, "Both purchase and refinance applications dropped, with the purchase index hitting a 28-year low as buyers remain sidelined due to limited housing supply and elevated mortgage rates." The refinance share of total applications slipped marginally from 30.1% to 30%, while adjustable-rate mortgage (ARM) activity decreased to 6.7% of total applications.

Given that most borrowers currently hold loans with rates below 4%, refinancing offers limited financial benefit. Many homeowners prefer to tap into home equity through second loans rather than refinancing and losing their favorable low interest rates.

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