Mortgage applications in the U.S. have plummeted for the fourth consecutive week, driven by rising interest rates. This decline is particularly pronounced for refinancing applications, reflecting the sensitivity of this market to short-term rate fluctuations. The housing market slowdown is also reflected in the declining performance of mortgage-related stocks, such as REITs and long-term Treasury bond ETFs.
Mortgage rates for 30-year fixed-rate mortgages have dropped to their lowest point since early May, but this hasn’t translated into a surge in mortgage applications. Homebuyers appear to be waiting for more clarity on the Federal Reserve’s future policy direction.
As mortgage rates climb, homebuyers are increasingly turning to adjustable-rate mortgages (ARMs) to minimize their monthly payments. These loans, which offer lower interest rates than fixed-rate options, have been gradually gaining market share, reaching 7.8% of mortgage demand last week, the highest level of the year. The average contract interest rate for ARMs has also declined, standing at 6.60%. Experts attribute this trend to stubbornly high inflation, which is pushing mortgage rates higher. Despite the resurgence of ARMs, overall mortgage demand has decreased, with applications for refinancing and home equity loans also falling. Meanwhile, applications from potential homebuyers have dropped by 14% year-over-year.
Adjustable-rate mortgage applications witnessed a 7.6% surge, indicating buyers’ efforts to secure lower borrowing costs amidst rising mortgage rates. However, ARM loans come with their inherent risks, as interest rates can fluctuate after an initial fixed period.
