Adjustable-Rate Mortgages Gain Popularity Amidst High Fixed-Rate Home Loan Environment
Homebuyers Shift Towards Adjustable-Rate Mortgages
Homebuyers are increasingly opting for adjustable-rate mortgages (ARMs) as 30-year mortgage rates reach their highest levels since 2000. This shift in preference has led to a 15% surge in ARM applications, marking the highest share in ten months at 9.2% of all applications. Despite the discouraging high rates, there has been a slight increase in home buying and refinancing demand, including cash-out refinancing, due to lower ARM rates.
Marginal Uptick in the Mortgage Market
The overall market composite index has witnessed a marginal uptick, with the purchase index rising by 0.7% and the refinance index by 0.3%. Average contract rates for both standard and jumbo loans have increased to 7.67% and 7.7% respectively, while FHA-backed mortgages rose to 7.4%. The rate for ARMs fell to 6.33%, and the 15-year rate rose to 6.97%.
Betting on Falling Rates
Joel Kan from the Mortgage Bankers Association (MBA) noted that application activity remains near multi-decade lows, with purchase applications lagging by almost 20% compared to last year and the average loan size at its lowest since 2017. Buyers are betting on the likelihood of rates falling by the time their ARM resets due to rates being at multi-decade highs.
Real Estate Entities Call for Halt on Interest Rate Hikes
Real estate entities, including the MBA, National Association of Realtors (NAR), and National Association of Home Builders (NAHB), have called on Federal regulators to halt further interest rate hikes due to the unstable housing market conditions. Despite the potential risk of rate hikes after five years, the yield curve inversion has improved ARM pricing.
Robust Economic Indicators and Affordability Barriers
Robust economic indicators have triggered fears of another Federal Reserve benchmark rate hike, causing an increase in and subsequent dip in mortgage demand. The 30-year mortgage rate has topped 7% for eight consecutive weeks, a trend not seen since 2000. This, coupled with resilient home prices and a near 20% drop in mortgage application volume from last year’s pace due to housing inventory scarcity, is intensifying affordability barriers. Homeowners are also reluctant to sell due to unfavorable current mortgage rates. Despite the risks, ARMs offer significant savings over five years, amounting to $18,000 based on MBA averages when compared to a 30-year mortgage.
Influence of Treasury Note and Weekly Mortgage Rates
The yield on the 10-year Treasury note remained below 4.7%. Freddie Mac’s weekly mortgage rates differ slightly from MBA’s figures but continue to influence market trends.
This article was generated with the support of AI and reviewed by an editor.
