Applications Slip As Rates Reach 7.24%

Mortgage applications declined last week as rates soared to a new high for 2024.

The Mortgage Bankers Association’s weekly survey shows that the adjusted Market Composite Index — a measure of mortgage loan application volume — fell by 2.7%.

Adjusted purchase applications slipped by 1%, while the unadjusted index was up 0.2% and 15% lower YOY.

Homebuyers are facing the highest rates of the year, with the 30-year fixed rate jumping to 7.24%. This is their highest point since late 2023.

“Purchase applications declined, as homebuyers delayed their purchase decisions due to strained affordability and low supply,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.

Notably, the share of ARM applications shot up to 7.6% as buyers looked for any way to reduce their monthly payments. Homeowners’ median monthly payments have soared to a record $2,775, up 11% in one year.

“When fixed rates were low, ARMs decreased in popularity. However, as fixed rates increase, ARMs are becoming more appealing to homebuyers who wish to keep their initial mortgage costs as low as possible,” Archana Pradhan, an economist at CoreLogic, wrote of the trend.

Pradhan noted that ARMs are much safer now than they were before 2008 thanks to higher lending standards. Fully 60% of borrowers who received ARMs in 2007 had credit scores lower than 640. Now, borrowers need a much higher score.

ARMs are still tricky for buyers who can’t count on higher wages or fewer expenses when their rate ticks up in a few years. Buyers may not fully understand the financial strains they may face at the end of their term. They’re great for those who don’t plan on staying in their home long-term, however.

Unsurprisingly, refinances took a hit as rates rose, down 6% from the week prior. Refis were up 3% year-over-year, however, and accounted for 30.8% of applications. In the past decade, they averaged 58% of all activity.