Demand for adjustable-rate mortgages rises as interest rates make the biggest jump in 13 years
According to the seasonally adjusted index from the Mortgage Bankers Association, mortgage applications to buy a house increased by 8% last week compared to the prior week, helped in part by demand for adjustable-rate mortgages. However, applications were 10% lower than they were during the same period last year.
Perhaps due to consumer anxiety that rates will rise any more, a significant increase in mortgage rates may have actually increased demand from homebuyers. Last week, mortgage rates experienced their greatest weekly increase in 13 years, rising to the highest level since 2008.
Meanwhile, the average contract interest rate on 30-year fixed-rate mortgages with conforming loan balances of $647,200 or less rose from 5.65 to 5.98 percent, with points including origination fees rising from 0.71 to 0.77.(along with the origination charge) for loans requiring a 20% down payment. The current rate is over two times what it was a year ago.
Joel Kan, an MBA economist, reported that “Purchase applications grew for the second consecutive week driven mostly by conventional applications while the ARM percentage of applications went back to above 10%.” “The average loan amount, at little over $420,000, is significantly below its peak of $460,000 earlier this year and may indicate that the rate of increase in home prices is slowing down.”
Mortgages with adjustable rates often have lower interest rates and can be set for periods of five, seven, or ten years. Due to their capacity to react to higher or lower rates, these loans are seen as being riskier. Compared to the previous housing bubble, They are underwritten much more carefully now than they were more than 10 years ago and ultimately resulted in an enormous housing disaster.
The fact that there are more houses on the market is likely contributing to the rise in buyer demand. According to Realtor.com, the amount of active inventory nationally has increased by 17% since last year. Homes are currently selling more quickly than they were a year ago. Refinancing requests for mortgages decreased 3 percent for the week and were 77 percent lower than during the same week last year. Refinance applications made up 29.7% of all mortgage activity, down from 31.7 percent the week before.