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Mortgage applications to purchase a home rose 8% last week compared to the previous week, buoyed in part by demand for adjustable rate mortgages, according to the Bankers Association’s seasonally adjusted Mortgage Index. However, orders were 10% lower than they were in the same week a year ago.
The big jump in mortgage rates may have already stimulated demand for homebuyers, possibly because consumers are worried about rising interest rates. Mortgage rates jumped to the highest level since 2008, while they posted their biggest one-week jump last week in 13 years.
Meanwhile, the average contract interest rate for 30-year fixed-rate mortgages with matching loan balances ($647,200 or less) increased to 5.98% from 5.65%, with points rising to 0.77 from 0.71 (including creation fees) For loans at 20% down payment. Prices are now almost double what they were a year ago.
Read more: Existing home sales fell in May
“Requisitions increased for the second week in a row – primarily driven by traditional apps – and ARM’s share of applications jumped to more than 10%,” wrote Joel Kahn, MBA economist. “The average loan size, just over $420,000, is well below its peak of $460,000 earlier this year, and is likely a sign that home price growth is slowing.”
Adjustable rate mortgages offer lower interest rates and can generally be fixed for five, seven or 10 years. While these loans are considered riskier, because they have the ability to adjust to higher or lower rates, they are more stringently guaranteed than they were during the recent housing boom over a decade ago that ultimately led to the epic housing crash.
Buyer demand may also increase as the supply of homes for sale is eventually increasing. Active inventory nationwide is now up 17% year over year according to Realtor.com. Homes are now selling faster than they were a year ago.
Home loan refinancing requests fell 3% on the week and were 77% lower than the same week a year ago. The share of refinancing in mortgage activity decreased to 29.7% of total applications from 31.7% in the previous week.