Demand for adjustable-rate mortgages surges, as interest rates make biggest jump in 13 years

A ‘for sale’ sign hangs in front of a home on June 21, 2022 in Miami, Florida. According to the National Association of Realtors, sales of existing homes dropped 3.4% to a seasonally adjusted annualized rate of 5.41 million units. Sales were 8.6% lower than in May 2021. As existing-home sales declined, the median price of a house sold in May was $407,600, an increase of 14.8% from May 2021.

The Mortgage Bankers Association said that mortgage applications rose 8% last week compared with the previous week. The number of applications was 10% lower than a year ago.

It's possible that a big jump in mortgage rates spurred demand for homes. Last week was the biggest jump in mortgage rates in 13 years.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 5.98% from 5.65% with points increasing to 0.77 from 0.71 for loans with a 20% down payment. One year ago, rates were close to doubling.

Existing home sales fell in May.

The purchase applications increased for the second week in a row, driven mainly by conventional applications, and the share of applications jumped back to over 10%. The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and could be a sign that home price-growth is slowing.

Fixed-rate mortgages can be fixed for a number of years. These loans are riskier because they have the ability to adjust to higher or lower rates, but they are not as risky as they were a decade ago.

The supply of homes for sale is growing, which may lead to an increase in buyer demand. According to the website, active inventory is up in the country. A year ago, homes were selling at a slower pace.

The number of applications to refi a home loan fell 3% for the week. The share of mortgage activity that was refinanced decreased.