The housing market has been showing signs of a worrisome slowdown

Home prices have been rising, but at a slower rate, while mortgage rates have been dropping. To better understand how this changing environment is impacting the mortgage industry, analysts have turned to new home mortgage application volume for clues.

Recent data indicates that new home mortgage application volume, as measured by the Mortgage Bankers Association (MBA), rose by 4 percent in the week ending May 17. This marks the second consecutive week of increased new home mortgage application volume, and suggests that the slowdown in the housing market may not be as severe as initially feared.

The increase in new home mortgage application volume was largely driven by refinancing activity. Refinance applications increased 7 percent, while purchase applications only saw a slight uptick of 1 percent over the same period. This is not particularly surprising considering that refinancing applications tend to rise when mortgage rates drop. With the average interest on 30-year fixed-rate mortgages dropping 10 basis points over the last two weeks, from 4.12 percent to 4.02 percent, it makes sense that homeowners would take the opportunity to refinance their loans and lock in lower rates.

At the same time, the overall slowing of price growth could be providing an additional incentive for prospective buyers to take advantage of the current environment and make an offer on a home. While national median home prices are still significantly higher than a year ago, the rate of growth has been slowing in recent months, indicating that buyers may be able to find better deals now compared to earlier in the year.

The data from the MBA also indicates that credit standards are becoming more lax, as the percentage of applicants with credit scores below 620 slightly increased from the previous week. This could be a sign that lenders are loosening their requirements in order to encourage more people to apply for mortgages.

Overall, the increase in new home mortgage application volumes suggests that the current slowdown in the housing market is not as severe as initially feared. Although home prices are still higher than last year, the rate of growth appears to be slowing and mortgage rates have been falling. This could make it easier for prospective buyers to find homes in their budget, and for borrowers to refinance their existing loans and save money. The fact that lenders are loosening their credit requirements is an additional positive sign, as it indicates that some of the financial barriers that have kept potential buyers from entering the market are being removed.

This article was contributed on Aug 04, 2023