As rates keep climbing, homebuyers are increasingly flocking to riskier adjustable-rate mortgages (ARMs). The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances increased to 6.81%. That was up from 6.61% and it’s the highest level we’ve seen since February. The average points for these conventional mortgages have dropped a bit from 0.63 to 0.62. This new increase is before factoring in the 20% downpayment loan origination fee.
The Mortgage Bankers Association (MBA) today announced that application volume fell a dramatic 8.5% on a seasonally adjusted basis from the previous week. Even with this large decline, mortgage applications to purchase a home were still robust. They were 13% above where they were for that same week one year ago. The ARM share jumped to 9.6%, the largest share since November 2023. This jump is consistent with a trend among borrowers in general—especially among those borrowing larger loans, who tend to choose ARMs.
Even as mortgage rates started the week heading in an encouraging downward direction, analysts warned that it is an unpredictable economic environment. According to Mike Fratantoni, Chief Economist at MBA, “Economic uncertainty and the volatility in rates is likely to make at least some prospective buyers more hesitant to move forward with a purchase.”
“Given the jump in rates, more borrowers are opting for the lower initial rates that come with an ARM, with initial fixed rates closer to 6 percent in our survey last week,” Fratantoni added. The ARM share jumped by a full percentage point in just one week, indicating robust demand in a challenging market.
Even with the decline in applications across the board, refinancing activity is still a lot higher compared to this time last year. Home purchase loan applications fell by 3%, with refinance applications down 12% this week. They’re still 68% above where they were this time last year. A year ago, rates were 32 basis points higher at this time. While largely unnoticed, this sea change may upend long-held assumptions in the mortgage marketplace.
Realty ticker analyst Matthew Graham cautioned against getting too cocky during a time of dramatic, chaotic changing rates. “Despite the friendly move and the relative calm, this still isn’t an environment where it makes sense to take anything for granted in terms of today’s rates being available beyond the present day,” he said.