New loan activity stormed out of the holidays with a large surge, aided by mortgage rates dropping to lows not seen in months, according to the Mortgage Bankers Association.

“Mortgage application activity rebounded strongly in the first full week of January, with both refinance and purchase activity increasing by double-digit percentages, compared to last week, which included the New Year’s holiday observance,” said Mike Fratantoni, MBA’s senior vice president and chief economist, in a press release.

The MBA’s Market Composite Index, a measure of weekly application activity based on surveys of association members, jumped a seasonally adjusted 27.9% from the prior seven-day period. The index headed upward for a second straight week after rising 1.2% to start the year. But compared to the same time frame in 2022, mortgage volumes still sat almost 60% lower. 

A week after falling to a nine-year low, the seasonally adjusted Purchase Index reversed course and accelerated 25%, but came in 35% lower year over year. A growing inventory of homes on the market and more favorable purchase environment point to a possible return of sidelined home buyers to the table, according to recent research from Realtor.com. Housing market signals hold some promise for the spring buying season if rate and price trends continue their current trajectories, the MBA said.

The Refinance Index also leaped 34% week over week. The surge in refinances led them to take a larger 31.2% share of overall activity, compared to 30.7% a week earlier, but volume remains 81% below its level of a year ago when mortgage rates were at less than half of their current readings.

Meanwhile, as rates have receded since peaking in October, the share of adjustable-rate mortgages relative to overall numbers slipped and fell to 6.6% from 7.3% the previous week. 

Average loan sizes headed upward again as activity picked up, with the mean amount recorded on all applications rising 2.3% to $358,100 from $349,900. The average purchase-loan amount crossed back over the $400,000 mark with a 3.2% uptick to $401,300 from $389,000 seven days earlier. Refinances saw a smaller increase of 0.4%, with their average size coming in at $262,700 compared to $261,600 the prior week.

While the seasonally adjusted Government Market Index posted an almost 20% surge, it was outpaced by an even larger rise in conventional applications, bringing down the share of federally sponsored activity. The increase on Jan. 1 of the conforming balance, turning what would have previously been jumbo mortgages into loans eligible for sale to the government-sponsored enterprises, so far coincides with the growing volume of conventional activity in 2023. 

Federal Housing Administration-backed applications made up 13% of total volume, down from 13.4% one week earlier, while mortgages guaranteed by the Department of Veterans Affairs decreased to 11.8% of activity from 13.2%. U.S. Department of Agriculture-backed loans took the same 0.6% share as it had seven days prior. 

The return of borrowers so far this year has come in tandem with further decreases in mortgage rates, which dropped across the board for a second straight week among MBA lenders. 

“Mortgage rates are now at their lowest level since September 2022, and about a percentage point below the peak mortgage rate last fall,” Fratantoni said.

The average contract interest rate for the 30-year fixed mortgage with conforming balances at or below $726,200 decreased 19 basis points to 6.23% from 6.42% a week earlier. Points decreased to 0.67 from 0.73 for 80% loan-to-value ratio loans. 

The contract rate for 30-year jumbo loans with balances above the conforming amount averaged 6.08%, inching down from 6.09% week over week, with points decreasing to 0.4 from 0.66.

The FHA-backed 30-year mortgage finished the week with a contract rate average of 6.26% compared to 6.39% seven days earlier. Points increased to 1.05 from 1.03 for 80% LTV loans.

The contract average of the 15-year fixed-rate mortgage plunged 36 basis points to 5.58% from 5.94%. Points decreased to 0.54 from 0.62.

The 5/1 adjustable-rate mortgage contract average also came in lower, dropping to 5.31% from 5.37% the prior week. Points increased to 0.74 from 0.72.