Recent trends in the mortgage market show a notable shift among potential homebuyers. As interest rates experience slight reductions, many are gravitating towards adjustable-rate mortgages (ARMs) for potential savings.
Decline in Mortgage Applications
According to the Mortgage Bankers Association (MBA), total mortgage application volume fell by 4.7% last week compared to the previous week. This decrease highlights the ongoing challenges for prospective buyers in the current economic landscape.
Current Interest Rates
- The average contract interest rate for 30-year fixed-rate mortgages decreased to 6.43%, down from 6.46%.
- Rates for loans with conforming balances ($806,500 or less) have seen minor fluctuations.
- Points for these loans dropped to 0.60 from 0.61 for borrowers making a 20% down payment.
- One year ago, the average rate was only 7 basis points lower.
Refinance Activity and Trends
Refinancing continues to be a mixed bag. Last week, refinance applications decreased by 8%. Despite this drop, they remain 18% higher year-over-year.
Mike Fratantoni, senior vice president and chief economist at MBA, noted that the demand for FHA refinance applications increased slightly, despite overall declines. This indicates varied strategies among homeowners seeking to lower their mortgage payments.
Purchasing Trends Amid Challenges
Applications for home purchases dipped by 1% during the week but were still 14% higher than the same time last year. The housing market is experiencing stagnation as potential buyers face high property prices and economic uncertainties.
Interestingly, while housing supply has increased compared to last year, many sellers are choosing to withdraw their listings or delay entering the market.
Shift Towards Riskier Mortgages
As a response to the fluctuating rates, adjustable-rate mortgages are gaining traction. The share of ARMs rose to 9.5% last week, up from 8.4% the previous week. These loans typically offer lower interest rates, making them attractive to buyers despite their inherent risks.
ARMs can have fixed terms lasting up to 10 years but may increase after that period, adding uncertainty to the borrowing decision. The average rate for 5/1 ARMs is about one percentage point lower than the prevailing 30-year fixed rates, leading to increased consideration among both buyers and refinancers, according to Fratantoni.
Market Stability Concerns
This week, mortgage rates have remained stable, largely due to a lack of government data stemming from a shutdown. This environment has contributed to maintaining calm within the bond markets.
