An “Open House” flag is displayed outside a single family home on September 22, 2022 in Los Angeles, California.
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Mortgage demand fell again last week as interest rates rose, but one type of loan is attracting borrowers. Adjustable mortgages, or ARMs, that offer lower rates, are seeing renewed demand after receiving very little interest over the past decade.
The total volume of mortgage applications last week fell 2% compared to the previous week, according to the seasonally adjusted Mortgage Bankers Association index, as a result of higher rates.
The average contract interest rate for 30-year fixed rate mortgages with matching loan balances ($647,200 or less) increased to 6.81% from 6.75%, with points increasing to 0.97 from 0.95 (including origination fees) for loans of 20%. low paying. This is the highest rate since 2006.
“The news of continued job growth and wage growth in September is positive for the housing market, as higher incomes support housing demand. However, it also halted the possibility of any near-term pivot from the Federal Reserve on its plans for an additional rate,” wrote Michael Fratantoni, chief economist at MBA Press Release.
The average rate of 5/1 ARM, which had a flat rate for the first five years, increased slightly, but remained lower, at 5.56%. ARM’s share of applications was just under 12%. When rates were low at the beginning of this year, that share was barely 3%, where it has been for several years.
ARM can be fixed for up to 10 years, but they are considered riskier loans because the price eventually adjusts to the market rate. Prices had been so low for so long that before prices started to rise, borrowers didn’t need to take this extra risk.
Higher overall rates crushed demand for refinancing even more, with orders down 2% for the week and 86% from the previous week. At this price level, there are hardly 150,000 borrowers who could benefit from refinancing, because many people already have loans at much lower rates, according to Black Knight, a mortgage technology and analytics company.
Mortgage applications to buy a home, which fell 2% on the week, are 39% lower than they were a year ago. Buyers are back this fall, as higher rates made affordability worse. Home prices are starting to fall, but potential buyers are also worried that if they buy now, the value of their new home could drop next year. And worries about a recession are making buyers wary of making such a huge investment.
Mortgage rates have moved higher to start this week; Another survey from Mortgage News Daily shows that 30 years is now flat at over 7%. All eyes now turn to the latest inflation report to be released on Thursday. Prices can move flatly in either direction.