Demand for mortgages has doubled as interest rates hit their highest level since 2009

A pending sale sign is erected in front of a home for sale on March 18, 2022 in San Rafael, California.

Justin Sullivan | Getty Images

Mortgage rates rose even higher last week, crashing demand for refinancing and prompting potential homebuyers to apply for more risky loan products that offer lower interest rates.

The total number of applications for mortgages fell by 8.3% last week compared to the week before, according to the Mortgage Credit Association’s seasonally adjusted index. Demand is now half of what it was a year ago.

Rising interest rates are to blame. The average contract rate for 30-year fixed-rate mortgages with compliant loan balances ($ 647,200 or less) rose to 5.37% from 5.20%, with points rising to 0.67 from 0.66 (including the set-up fee) for loans with a decrease of 20% payment. This is the highest rate since 2009. The rate was 3.17% in the same week a year ago.

Higher rates clearly hit buyers despite a continued high demand for housing. Mortgage applications to buy a home fell 8% for the week and were 17% lower than in the same week a year ago. This in the heart of the spring housing season.

“The recent drop in purchase applications is an indication of potential weakness in home sales in the coming months,” said Joel Kan, an MBA economist.

However, buyers are now turning more to adjustable-rate loans, which offer lower interest rates. The average rate of a 5-year ARM was 4.28% last week.

“The ARM share of applications last week was over 9% after loan count and 17% based on dollar volume. With 9%, the ARM share was double what it was three months ago, which also coincides with the increase of 1.5 percentage points in 30-year fixed interest rates, “Kan noted.

ARMs can be set for terms such as five, seven or 10 years, but they adjust when the maturity is up to the current market rate so that they are considered to be slightly more risky than a 30-year fix.

Applications for refinancing a home loan fell 9% for the week and were 71% lower than in the same week a year ago. The refinancing share of the total applications fell to only 35%. That was about 61% of the total application volume a year ago.

Mortgage rates set more than a dozen record low levels in 2020 and hovered around these lows throughout 2021. As a result, most borrowers have already refinanced at interest rates far below what is available today. Mortgage rates fell slightly to start this week as bond yields fell, but they are expected to continue to move higher over the year.

Leave a Reply

Your email address will not be published.