Demand for adjustable-rate mortgages doubles as interest rates hit their highest levels since 2009
A pending sale sign is posted in front of a home for sale on March 18, 2022 in San Rafael, California.
Justin Sullivan | beautiful pictures
Mortgage rates jumped even higher last week, reducing need for refinance and prompting potential homebuyers to sign up for riskier loan products with lower interest rates.
Total mortgage applications fell 8.3% last week from the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand is now half of what it was a year ago.
Rate increase is the cause. The average contract interest rate for 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) increased to 5.37% from 5.20%, with a point going up to 0.67 from 0.66 (including principal) for loans with a 20% reduction in payments. This is the highest rate since 2009. It was 3.17% in the same week a year ago.
Higher rates are clearly affecting buyers, although demand for housing remains strong. Mortgage applications to buy a home fell 8% for the week and were 17% lower than in the same period a year ago. This is in the heart of the spring housing season.
“The recent drop in home applications is indicative of potential home sales in the coming months,” said Joel Kan, an MBA economist.
However, buyers are now turning to adjustable-rate mortgages, which offer lower interest rates. The 5-year average on ARM was 4.28% last week.
“The ARM share in applications last week was over 9% by loan amount and 17% based on dollar volume. At 9%, the ARM rate has more than doubled from three months ago, also coinciding. with an increase of 1.5 percentage points in Kan note: fixed interest rate for 30 years.
ARMs can be fixed for terms such as 5, 7, or 10 years, but they adjust as that term to current market rates, so they are considered slightly riskier than the fixed term. fixed 30 years.
Applications to refinance a home loan fell 9% for the week and were 71% lower than in the same period a year ago. The refinancing share of the total number of applications dropped to just 35%. It accounted for about 61% of total applications a year ago.
Mortgage rates set more than a dozen record lows in 2020 and hover around that low throughout 2021. As a result, most borrowers refinanced at much lower interest rates than they did. now available. Mortgage rates fell slightly earlier this week, as bond yields fell, but they are expected to continue moving higher throughout the year.
