Rosalind Evans
As mortgage interest rates continue progressing upward, the mortgage industry is witnessing a significant shift in consumer preferences and behaviours. The demand for mortgages has slowed down to its lowest pace since 1995, with total application volume experiencing a 1% drop last week compared to the previous week, as reported by the Mortgage Bankers Association’s seasonally adjusted index. Despite the overall stagnation in mortgage demand, there’s a notable exception that is gaining traction – the adjustable-rate mortgage (ARM).
The adjustable-rate mortgage, known for its slightly lower rates, has seen a surge in popularity, with its share of total demand reaching 9.5%, marking the highest level in almost a year. This surge in ARM demand comes amidst a rise in the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less), which increased from 7.70% to 7.90%, with points rising from 0.71 to 0.77, inclusive of the origination fee, for loans with a 20% down payment. Concurrently, the average contract interest rate for 5/1 ARMs also witnessed an increase, moving from 6.52% to 6.99%.
Joel Kan, an MBA economist, shed light on the factors influencing the current mortgage landscape, stating, “Ten-year Treasury yields climbed higher last week, as global investors remained concerned about the prospect for higher-for-longer rates and burgeoning fiscal deficits. Rates have now risen seven consecutive weeks at a cumulative amount of 69 basis points.”
In addition to the evolving mortgage demand, the mortgage market has experienced a shift in the proportion of refinances and home purchase applications. Applications to refinance a home loan saw a 2% increase from the previous week but were 8% lower than the same week one year ago. This marks a significant departure from the trend observed two years ago when refinances constituted two-thirds of mortgage demand, fueled by record-low rates. Today refinances account for less than a third of total application activity.
Moreover, applications for mortgages to purchase a home have also experienced a 2% decline for the week, coupled with a 22% decrease compared to the same week last year. Prospective homebuyers are also grappling with the challenges posed by higher mortgage rates. Still, they are also contending with the minimal available housing supply, with real estate agents reporting a near standstill in the market for existing homes even before the winter season.
The mortgage industry is transforming in response to the evolving economic landscape. The rise in interest rates has prompted a notable shift in consumer preferences, with adjustable-rate mortgages gaining popularity as a more financially viable option. The changes in mortgage demand, coupled with the fluctuations in refinances and home purchases, underscore the need for prospective homeowners and industry stakeholders to closely monitor market trends and make informed decisions in these tumultuous times.
