Overall mortgage application volume decreased 4.7% last week, with refinance applications down 8% and purchase applications down 1%, despite a marginal decline in the 30-year fixed-rate mortgage to 6.43%. This continued weakness in demand, coupled with a significant increase in adjustable-rate mortgage (ARM) share to 9.5% (from 8.4%), suggests borrowers are increasingly sensitive to rates and opting for riskier, lower-initial-rate products amidst high home prices and economic uncertainty.
Mortgage demand overall weakened again last week, even as interest rates fell slightly. For those still in the market, though, they are looking increasingly to adjustable-rate loans to get the lowest interest rate possible. Total mortgage application volume dropped 4.7% last week compared with the previous week, according to the Mortgage Bankers Association's seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances, $806,500 or less, decreased to 6.43% from 6.46%, with points falling to 0.60 from 0.61, including the origination fee, for loans with a 20% down payment. The rate was just 7 basis points lower the same week one year ago. Applications to refinance a home loan, which rose sharply in mid-September and then dropped back again two weeks ago, fell further last week, down 8%. Refinance demand is still 18% higher than it was the same week one year ago. "With mortgage rates on fixed-rate loans little changed last week, refinance application activity generally declined, with the exception of a modest increase for FHA refinance applications," said Mike Fratantoni, senior vice president and chief economist at the MBA. Applications for a mortgage to purchase a home fell 1% for the week and were 14% higher year over year. Purchase demand hasn't moved much in the past few months as potential homebuyers contend with high prices and growing uncertainty in the economy. While the supply of homes for sale is higher than it was a year ago, more sellers are delisting their properties, or choosing to wait before listing. For those who are buying or refinancing, somewhat riskier adjustable-rate mortgages are gaining in popularity, as they offer lower interest rates. Rate terms on ARMs can be fixed for up to 10 years, but the loans are considered riskier, as they can adjust higher depending on market conditions when the fixed term expires. "The ARM share increased to 9.5 percent last week from 8.4 percent the prior week. Our survey shows 5/1 ARM rates are averaging almost a percentage point below 30-year fixed rates, and this differential is leading more purchase and refinance applicants to consider ARMs," said Fratantoni. Mortgage rates haven't done much to start this week, as the absence of government data on the economy, due to the shutdown, has kept bond markets relatively calm. Mortgage application volume experienced a 4.7% decline last week, marking a continued weakening in demand despite a slight decrease in the 30-year fixed-rate mortgage to 6.43% from 6.46%. This marginal rate reduction of 3 basis points did not significantly stimulate overall market activity. Refinance applications fell 8% week-over-week, though they remain 18% higher year-over-year, with FHA refinance applications showing a modest increase. Purchase applications also decreased by 1% for the week, yet they are 14% higher year-over-year, indicating a persistent struggle for homebuyers against elevated prices and economic uncertainty. A notable trend is the increasing adoption of adjustable-rate mortgages (ARMs), with their share rising to 9.5% from 8.4% in the prior week. This reflects borrowers' pursuit of lower initial interest rates, as 5/1 ARMs are almost a full percentage point below 30-year fixed rates, despite the inherent risk of future rate adjustments. The current calm in mortgage rates is largely attributed to the absence of government economic data due to a shutdown, which has kept bond markets relatively stable. This temporary market condition may not reflect underlying economic fundamentals.
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