Mortgage rates moved even higher last week, causing potential homebuyers to apply for riskier loan products which offer lower rates.
The total mortgage application volume fell last week compared with the previous week. The demand is half of what it was a year ago.
The rising rates are to blame. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 5.37% from 5.20%, with points rising to 0.67 from 0.66 for loans with a 20% down payment. That is the highest rate since 2009. The rate was the same a year ago.
Despite strong demand for housing, higher rates are hitting buyers. The number of mortgage applications to purchase a home fell for the week and were lower than a year ago. This is in the middle of the spring housing season.
The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months, according to an economist.
The lower interest rates on the variable-rate mortgages are appealing to buyers. The average rate on a five-year mortgage was 4.28% last week.
The share of applications with the ARM was over 9% by loan count and over 18% by dollar volume. The 1.5 percentage point increase in the 30-year fixed rate coincides with the double what the ARM share was three months ago.
When the term is up to the current market rate, they are considered slightly riskier than a 30-year fixed.
The number of applications to refi a home loan fell 9% for the week and were 70% lower than a year ago. The share of total applications that were refinanced dropped. It was a large part of the total application volume a year ago.
In 2020 mortgage rates set a dozen record lows and stayed low throughout the rest of the year. Most borrowers have already taken advantage of the low rates available. Mortgage rates are expected to move higher throughout the year, as bond yields fell this week.
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