Mortgage applications surprisingly jumped 8% last week compared to the previous seven day period, boosted by demand for adjustable-rate mortgages, according to the Mortgage Bankers Association. However, applications are still down 10% compared to one week ago.
The MBA said that last week’s jump in mortgage rates may have actually increased homebuying demand, as consumers worry that rates will rise again in the coming weeks. Mortgage rates are now at their highest level since 2008.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.98% from 5.65%, with points rising to 0.77 from 0.71 (including the origination fee) for loans with a 20% down payment. Rates are now nearly double what they were one year ago.
MBA economist Joel Kan told CNBC that purchase applications increased for the second week in a row, driven by both conventional mortgage applications and a 10% rise in ARM mortgage applications.
“The average loan size, at just over $420,000, is well below its $460,000 peak earlier this year and is potentially a sign that home price-growth is moderating,” he added.
ARMs are growing in popularity because they offer lower interest rates at first, which can be fixed for a period of five, seven or 10 years. The loans are considered to be risky though, as they can adjust to a higher or lower rate once that period is up. However, they are underwritten more strictly now than they were prior to the Great Recession, meaning that it’s harder to qualify for such loans.
The MBA said buyer demand may also be increasing because home inventories are finally growing. Data from realtor.com shows that active home inventory is now up 17% from a year earlier, and homes are also selling faster than they were this time last year.