ARM Applications See Boost Again As Buyers Struggle With High Costs

Mortgage applications slipped again last week, though ARM applications soared in response to ongoing affordability pressures.

The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – decreased by 2.1%, slightly up from the week prior’s 1% dip.

Adjusted purchase applications slipped by 1%, while the unadjusted index fell by 2% from the week before and was 22% lower YOY.

Applications decreased despite the 30-year fixed mortgage cooling slightly to 7.86%, breaking a weeks-long streak of increases. Rates remain close to 23-year highs, however, and all rates are approximately 30 bps higher than a month ago.

“The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023. Applications for government loans saw much larger weekly declines than conventional, with government purchase applications down 3% and refinances down 9%,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist. 

Refinances fell 4% and accounted for 31.2% of total applications. There remains a small market for them as locked-in homeowners cling to sub-5% rates. In the past decade, they averaged 58% of total activity.

“As higher rates continue to impact affordability and purchasing power, ARM loans increased almost 10% last week and continued to gain share,” Kan added.

ARMs hit 10.7% of total applications, their highest share in nearly a 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 buyers who don’t plan on staying in their home long, however.

The FHA share of total applications fell to 14.7% from 15.2%, with an average interest rate of 7.57%.

The VA’s share decreased to 10.1% from 10.5%, while the USDA’s share rose to 0.5% from 0.4%.

The jumbo rate rose from 7.56% to 7.78%.

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