Mortgage purchase demand fell for a third week as rates hit their highest point since November.
The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – dropped by 5.7%, a slight improvement on last week’s 13.3% dip.
The average interest rate for 30-year fixed loans rose from 6.62% to 6.71%. Rates have jumped by 50 basis points just in the last month, driving applications down.
Adjusted purchase applications decreased by 6%, while the unadjusted index was down 3% from the week before and was 44% lower YOY.
“Data on inflation, employment, and economic activity have signaled that inflation may not be cooling as quickly as anticipated, which continues to put upward pressure on rates,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
“Both purchase and refinance applications declined last week, with the purchase index at a 28-year low for a second consecutive week. Purchase applications were 44% lower than a year ago, as homebuyers again retreat to the sidelines as higher rates crimp affordability. Refinance applications account for less than a third of all applications and remained more than 70% behind last year’s pace, as a majority of homeowners are already locked into lower rates.”
Refinances were down 6% from the week prior and 74% lower than the same time last year, comprising only 31.8% of total applications.
In the past decade, refis averaged 58% of total activity.
The share of ARM activity rose for another week after seeing declines when rates were closer to 6%. ARMs accounted for 8.1% of applications, up from 7.6%. Rates for these loans saw a boost from 5.66% to 5.73%.
In the 1990s and early 2000s, adjustable-rate mortgages were popular. Homebuyers used them to get into a first-time home purchase, and homeowners took advantage of adjustable-rate mortgages to upgrade to a larger home as their families grew.
But while they can seem like a useful stop-gap for finding an affordable home, many people struggle to prepare for a rate change down the road.
“I am not big on ARMS,” Matt Abraham of Homestar Financial told The Mortgage Note. “I have been doing this for 24 years and people’s living situation can be unpredictable. Even though there are the best intentions of exiting an ARM, sometimes it just doesn’t work out that way.”
Other key findings include:
-The FHA share of total applications remained unchanged at 12.1%, with an average interest rate of 6.45%, up from 6.39%.
-The VA share decreased from 12% to 11.6%, and the USDA share fell to 0.5% from 0.6%.
-The average contract interest rate for 30-year fixed-rate mortgages with jumbo loan balances remained unchanged at 6.44%.
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— The Mortgage Note (@TheMortgageNote) February 28, 2023
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