Mortgage applications slipped again last week as purchase activity fell to its lowest level since 1995.
The Mortgage Bankers Association’s weekly survey shows the adjusted Market Composite Index – a measure of mortgage loan application volume – declined by 1.3%, down from the week prior’s 5.4% increase.
Adjusted purchase applications sank by 2%, while the unadjusted index fell by 2% from the week before and was 27% lower YOY.
Declines can be attributed to the average interest rate for a 30-year fixed loan increasing 12 bps to 7.53%, the highest rate since 2000. A recent boost in Treasury yields forced rates higher for the fourth straight week.
The jumbo rate also set another record, jumping 17 bps from 7.34% to 7.51%. This is the highest rate ever recorded in MBA’s jumbo series, which dates to 2018.
“As a result, mortgage applications grounded to a halt, dropping to the lowest level since 1996. The purchase market slowed to the lowest level of activity since 1995, as the rapid rise in rates pushed an increasing number of potential homebuyers out of the market,” said Joel Kan, MBA’s Vice President and Deputy Chief Economist.
Kan said ARM loan applications picked up over the week and the ARM share increased to 8%, as some borrowers searched for ways to lower their payments.
ARMs helped contribute to the 2008 crash when a lack of regulation left many homeowners stuck in financial distress they didn’t predict.
Though fewer ARMs are being issued now than then, an increase may be cause for concern.
“I am not big on ARMS,” Matt Abraham of Homestar Financial said. “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.”
Abraham said there are people an ARM is good for, but if borrowers plan to get in it is key to plan to get out.
“If you definitely know you are exiting a property, an ARM can be a good thing. Military people are a good example of someone who will be relocating in a few years. That sort of example, an ARM could be a good thing to go with,” Abraham said.
Refinances also took a hit, down 7%, accounting for 31.97% of total applications. In the past decade, refis averaged 58% of total activity.
The FHA share of total applications rose to 14.5% from 14.1%, with their interest rate rising to 7.29%.
The VA’s share was down to 10.1% from 10.9%, while the USDA’s share remained unchanged at 0.5%.
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