“For Sale” and “Sale Pending” signs in the West Seattle neighborhood of Seattle, Washington, US, on Tuesday, June 18, 2024.
David Ryder | Bloomberg | Getty Images
Mortgage rates jumped to the highest level since February last week, dampening overall demand and sending homebuyers in search of riskier loans with lower rates.
Total mortgage application volume fell 8.5% last week compared to 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, increased to 6.81% from 6.61%, with points decreasing to 0.62 from 0.63, including the origination fee, for loans with a 20% down payment.
Applications for a mortgage to purchase a home dropped 5% for the week and were 13% higher than the same week one year ago. Demand from buyers may be higher than a year ago, but there is 30% more active inventory on the market than there was last year at this time, according to Realtor.com. That suggests the annual comparison should be much larger, as low inventory was blamed for weak sales last year.
“Economic uncertainty and the volatility in rates is likely to make at least some prospective buyers more hesitant to move forward with a purchase,” said Mike Fratantoni, MBA’s SVP and chief economist.
Home prices are also higher than they were a year ago, and that has more borrowers looking to lower their potential monthly payments. Adjustable-rate mortgages offer lower interest rates but are considered riskier because they have a shorter fixed term and then can adjust higher.
“Given the jump in rates, more borrowers are opting for the lower initial rates that come with an ARM, with initial fixed rates closer to 6 percent in our survey last week,” said Fratantoni, noting a full percentage point jump in the ARM share in just a week.
“The ARM share at 9.6 percent was the highest since November 2023, and this reflects the share of units. On a dollar basis, almost a quarter of the application volume last week was for ARMs, as borrowers with larger loans are even more likely to opt for an ARM,” he added.
Applications to refinance a home loan dropped 12% for the week but were 68% higher than the same week one year ago. Rates at this time last year were 32 basis points higher.
Mortgage rates moved lower to start this week, as markets were far calmer than they were last week. But experts warn there is likely more volatility to come.
“Despite the friendly move and the relative calm, this still isn’t an environment where it makes sense to take anything for granted in terms of today’s rates being available beyond the present day,” said Matthew Graham, chief operating officer at Mortgage News Daily.
Source: www.cnbc.com