Mortgage Demand Declines Amid Slight Rate Drops
Mortgage demand weakened again last week, with total application volume falling 4.7% compared to the previous week, according to the Mortgage Bankers Association (MBA). This decrease occurred despite a modest decline in average interest rates for 30-year fixed-rate mortgages, which edged down to 6.43% from 6.46%. The average points, including origination fees for loans with a 20% down payment, also decreased slightly to 0.60 from 0.61. Notably, the current rate remains only marginally lower—by 7 basis points—than the rate recorded in the same week one year ago.Refinance Applications See Continued Decline
Refinance applications, which had surged mid-September before retreating, fell an additional 8% last week. Despite this decline, refinance demand remains elevated, standing 18% higher than the same period last year.“With mortgage rates on fixed-rate loans little changed last week, refinance application activity generally declined, with the exception of a modest increase for FHA refinance applications,” said Mike Fratantoni, senior vice president and chief economist at the MBA.
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Purchase Mortgage Activity Remains Muted
Applications for home purchase mortgages dropped 1% week-over-week but remain 14% higher compared to last year. The purchase market has seen limited movement in recent months as prospective buyers face persistently high home prices coupled with economic uncertainties. While housing inventory has increased relative to last year, many sellers are either withdrawing their listings or postponing putting homes on the market, further constraining supply.Adjustable-Rate Mortgages Gain Popularity
Amid the challenging fixed-rate environment, borrowers are increasingly turning to adjustable-rate mortgages (ARMs) to secure lower initial rates. Last week, the ARM share of mortgage applications rose to 9.5% from 8.4% the prior week. ARMs typically offer fixed rates for an initial period—often up to 10 years—before adjusting based on market conditions, making them riskier but more affordable in the short term.“Our survey shows 5/1 ARM rates are averaging almost a percentage point below 30-year fixed rates, and this differential is leading more purchase and refinance applicants to consider ARMs,” Fratantoni explained.
Market Conditions and Outlook
Mortgage rates have remained relatively stable at the start of the week, influenced by a lack of new government economic data amid a shutdown. This absence has kept bond markets calm, limiting rate volatility.FinOracleAI — Market View
The recent trend toward riskier adjustable-rate mortgages reflects borrowers’ efforts to mitigate high financing costs in a persistently expensive housing market. While overall mortgage demand softens, the appetite for ARMs signals a strategic shift amid economic uncertainty.- Opportunities: Lower initial ARM rates provide short-term affordability, potentially increasing home purchase feasibility.
- Risks: ARMs carry the risk of rate resets that could significantly increase monthly payments after the fixed period.
- Refinance demand remains elevated, suggesting continued homeowner interest in leveraging rate fluctuations.
- Supply constraints from hesitant sellers may sustain price pressures despite higher inventory levels.
