Mortgage demand fell for a fourth week in a row, as homebuyers and homeowners who might refinance remain wary. According to the Mortgage Bankers Association (MBA), overall mortgage application volume fell by 4.7% last week. This drop off was largely attributed to a drop in refinancing activity.
Refinancing applications decreased by 8% last week. While refinance demand has declined, it is still quite a bit stronger than one year ago. As of mid-July 2023, it is still 18% higher than it was this time in 2022. Applications for home purchase loans fell 1% on a weekly basis. Purchase demand is still strong, up 14% compared to this week in 2022.
The average contract interest rate for 30-year fixed-rate mortgages experienced a small decline, falling to 6.43% from 6.46%. This is still 7 basis points lower than the same week last year. As Mike Fratantoni, the MBA’s Senior Vice President and Chief Economist remarked last month, demand for mortgage refinancing is still sluggish. Not even with awhile stable rates at that hasn’t went up.
“With mortgage rates on fixed-rate loans little changed last week, refinance application activity generally declined, with the exception of a modest increase for FHA refinance applications,” – Mike Fratantoni.
One major story is the increased popularity of adjustable-rate mortgages (ARMs). The ARM share jumped up from 8.4% to 9.5% last week, reflecting how significant numbers of these first-time applicants are looking towards these loans. That difference between 5/1 ARM rates and 30-year fixed rates has now grown to almost a percentage point. This helps to make ARMs an extremely attractive option for certain borrowers.
“The ARM share increased to 9.5 percent last week from 8.4 percent the prior week. Our survey shows 5/1 ARM rates are averaging almost a percentage point below 30-year fixed rates, and this differential is leading more purchase and refinance applicants to consider ARMs,” – Fratantoni.
ARMs offer fixed rates for initial terms that can extend up to ten years but carry the risk of adjusting higher depending on market conditions once the fixed term expires. This volatility in payments makes ARMs a much riskier option than conventional fixed-rate mortgages.
Though these trends have compelled borrowers towards a lot of change, overall purchase demand has flattened out over the last few months. Sky-high housing prices, along with the eroding effects of rising economic uncertainty, have left millions of would-be buyers waiting in the wings.