A pending sale sign is posted in front of a home for sale on March 18, 2022 in San Rafael, California.
justin sullivan | fake images
Mortgage rates rose further last week, slumping demand for refinancing and prompting would-be homebuyers to apply for riskier loan products that offer lower rates.
The total volume of mortgage applications fell 8.3% last week compared to the previous week, according to the seasonally adjusted index from the Mortgage Bankers Association. Demand is now half of what it was a year ago.
Rising rates are to blame. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.37% from 5.20%, with points rising to 0.67 from 0.66 (including origination fee) for loans with a 20% down payment. That is the highest rate since 2009. The rate was 3.17% the same week a year ago.
Higher rates are clearly hurting buyers, even though housing demand remains strong. Mortgage applications for home purchase fell 8% for the week and were 17% lower than the same week a year ago. This in the heart of the spring housing season.
“The recent decline in purchase applications is an indication of possible weakness in home sales in the coming months,” said Joel Kan, an MBA economist.
Buyers, however, are now turning more to adjustable-rate mortgages, which offer lower interest rates. The average rate for a 5-year ARM was 4.28% last week.
“ARM’s share of applications last week topped 9% based on loan count and 17% based on dollar volume. At 9%, ARM’s share was double what it was three months ago, which also coincides with the 1.5 percentage point increase in the 30-year fixed rate,” Kan noted.
ARMs can be fixed for terms such as five, seven, or 10 years, but they adjust once the term reaches the current market rate, so they are considered slightly riskier than a 30-year fixed term.
Applications to refinance a home loan fell 9% for the week and were 71% lower than the same week a year ago. The refinancing share of total applications was reduced to just 35%. It was about 61% of the total volume of requests a year ago.
Mortgage rates set more than a dozen record lows in 2020 and hovered around those lows throughout 2021. As a result, most borrowers have already refinanced at rates well below what is available today. Mortgage rates dipped slightly at the start of this week as bond yields fell, but are expected to continue rising throughout the year.