Mortgage rate spike boosts ARM demand
Rising interest rates are again putting a dent in customer demand for mortgages
Macro Trends Advisors founding partner Mitch Roschelle discusses the housing market amid rising inflation and home builders starting to favor selling to investors.
Rising interest rates are again putting a dent in customer demand for mortgages.
Demand for mortgages applications fell 1.3% from the prior week, according to the weekly survey from the Mortgage Banker's Association.
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"Mortgage rates across all loan types continued to move higher, with the 30-year fixed rate exceeding the 5-percent mark to 5.13 percent – the highest since November 2018," said Joel Kan, MBA’s associate vice president of economic and industry forecasting. "Refinance activity as a result declined to the slowest weekly pace since 2019."
A new home in Washingtonville, N.Y. (AP Photo/John Minchillo, File / AP Newsroom)
The Refinance Index decreased 5% from the previous week.
One area that has seen a rise in demand is adjustable-rate mortgages.
"Higher rates are increasing borrower interest in ARMs. Their share of applications last week was at 7.4 percent, which was the highest share since June 2019", added Kan. "In a promising sign of strong purchase demand amidst affordability challenges, both conventional and government purchase applications increased."
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The Purchase Index increased 1% from one week earlier.
With the rise in mortgage rates along with the Federal Reserve most likely increasing rates to curb inflation, the MBA sees mortgage originations slowing.
A "For Sale" sign stands in front of a home that is in the process of being sold in Monroe, Wash., outside of Seattle. (AP Photo/Elaine Thompson, File) (AP Photo/Elaine Thompson, File / AP Newsroom)
MBA’s April 2022 forecast now calls for mortgage originations to total $2.58 trillion in 2022 – a 35.5% decline from 2021. Purchase originations are still forecasted to reach a record $1.72 trillion this year – a 4% increase from 2021. Refinance originations are now expected to fall 64% to $841 billion.
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"Mortgage rates have spiked more than 1.5 percentage points thus far in 2022. This rapid increase in rates, caused by a much more rapid pace of rate hikes and balance sheet reduction from the Federal Reserve, is in response to the booming job market and inflation being at a 40-year high," said Mike Fratantoni, MBA’s senior vice president and chief economist. "The jump in mortgage rates will slow the housing market and further reduce refinance demand the rest of this year."
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Existing home sales are expected to be impacted by higher home prices and rates as well as ongoing supply constraints.
The survey covers over 75% of all U.S. retail residential mortgage applications and has been conducted weekly since 1990.