Mortgage rates surged to their highest levels since February last week, dampening demand and prompting homebuyers to seek riskier loans in search of lower rates.
Mortgage application volume dropped by 8.5% last week compared to the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index.
The average rate on 30-year fixed-rate mortgages with loan balances of $806,500 or less increased to 6.81% from 6.61%, with points falling slightly to 0.62 from 0.63. This rate applies to loans requiring a 20% down payment.
Home purchase mortgage applications declined by 5%, though they were 13% higher compared to the same week last year.
However, with 30% more homes available on the market this year compared to last, the annual comparison should be much stronger. Low inventory previously stunted sales growth.
Mike Fratantoni, Senior Vice President and Chief Economist at the MBA, stated, “Economic uncertainty and rate volatility are likely causing hesitation among prospective buyers.”
Higher home prices have prompted more buyers to consider lowering their monthly payments, with adjustable-rate mortgages (ARMs) becoming a popular choice.
While these loans offer lower initial rates, they come with higher risks due to the potential for rates to rise after an initial fixed period.
“Due to the recent rate hike, more borrowers are opting for the lower initial rates that come with ARMs, with fixed rates nearing 6%,” Fratantoni explained. “The ARM share jumped by a full percentage point in just one week, reaching 9.6%—the highest since November 2023.
On a dollar basis, nearly a quarter of the application volume was for ARMs, with borrowers taking out larger loans particularly likely to opt for these riskier options.”
Refinance applications fell by 12% week-over-week, though they were 68% higher than the same week last year, when rates were 32 basis points higher.
Mortgage rates dipped to start the week, as markets calmed. However, experts caution that more volatility may lie ahead.
Matthew Graham, COO at Mortgage News Daily, said, “Despite the recent dip, this is still a volatile environment, and borrowers shouldn’t expect today’s rates to remain stable.”
In the current landscape, economic uncertainty and volatile interest rates are having a significant impact on the business of real estate and mortgage lending, influencing buyers and sellers alike.
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