Mortgage applications dropped 9.4% in the last week of 2023 despite a decline in interest rates, according to the Mortgage Bankers Association (MBA).

The results of the MBA's Weekly Mortgage Applications Survey, released Jan. 3, include adjustments to account for the holidays. On an unadjusted basis, the Market Composite index declined 38% compared with two weeks ago.

The holiday-adjusted Refinance Index declined 18% from two weeks ago, and the unadjusted Refinance Index plunged 43% during the same period.

"Markets continued to digest the impact of slowing inflation and potential rate cuts from the Federal Reserve, helping mortgage rates to stay at levels closest to the lowest since mid-2021," MBA Vice President and Deputy Chief Economist Joel Kan said.

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The 30-year fixed mortgage rate increased last week higher and ended 2023 at 6.76% — over a percentage point lower than its peak of 7.9% in October.

"The recent decline in rates has given the housing market some cause for optimism going into 2024, but purchase applications have not yet picked up in response, with the overall level of purchase activity 12% lower than a year ago," Kan said. "Refinance applications were still at very low levels but were 15% higher than a year ago.

"The housing market has been hampered by a limited supply of homes for sale, but the recent strength in new residential construction will continue to help ease inventory shortages in the months to come."

The refinance portion of mortgage activity declined to 36.3% of total applications from 39.4% the previous week. The share of adjustable-rate mortgages (ARMs) dropped to 6% of total applications.

The share of Federal Housing Authority (FHA) applications decreased to 14.5% from 15% the previous week, and the Veterans Affairs (VA) share of applications declined to 14.6% from 17.3% during the same period. The U.S. Department of Agriculture (USDA) saw an increase in applications to 0.5% from 0.4%.

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