On March 18, 2022, a sign for sale is posted in front of a home for sale in San Rafael, California.
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Mortgage rates rose even higher last week, refinancing demand plummeted, and potential homebuyers are now applying for higher-risk loan products that offer lower interest rates.
According to the Seasonally Adjusted Index of the Mortgage Bankers Association, total mortgage applications have fallen by 8.3% compared to last week. Demand has halved from a year ago.
It’s because of the rate of increase. Average contract rates for 30-year fixed rate mortgages ($ 647,200 or less) with matching loan balances have risen from 5.20% to 5.37% and have fallen 20% from 0.66 (including origination fees) to 0.67. The points have increased. payment. This is the highest rate since 2009. The rate for the same week a year ago was 3.17%.
Despite strong demand for housing, higher interest rates are clearly damaging buyers. Mortgage applications to buy a home were down 8% that week, down 17% from the same week a year ago. This is at the heart of the spring housing season.
“The recent decline in purchase offers represents a potential weakness in home sales in the coming months,” said Joel Kang, an MBA economist.
However, buyers are now looking at floating rate mortgages that offer lower interest rates. The average ARM rate for five years was 4.28% last week.
“Last week, the application’s ARM share was over 9% in loans and 17% in dollar volume. At 9%, the ARM share doubled from three months ago. This is a 30-year fixed rate.” Said.
ARM can be modified over a period of 5, 7, 10 years, etc., but is considered to be slightly more risky than the fixed 30 years as the period is adjusted when it reaches the current market rate.
Mortgage refinancing applications were down 9% that week, down 71% from the same week a year ago. Refinancing as a percentage of the total application has dropped to just 35%. It was about 61% of the total application volume a year ago.
Mortgage rates hit record lows of over 12 in 2020 and remained around those lows throughout 2021. As a result, most borrowers are already refinancing to rates well below currently available rates. Mortgage rates have fallen slightly to start this week as bond yields have fallen, but are expected to continue to rise throughout the year.