Mortgage applications to purchase a home rose 8% last week compared with the previous week, bolstered in part by demand for adjustable-rate mortgages, according to the Mortgage Bankers Association’s seasonally adjusted index. Applications were, however, 10% lower than they were in the same week one year ago.
A big jump in mortgage rates may have actually spurred homebuyer demand, perhaps as consumers worried rates would move even higher. Mortgage rates surged to the highest level since 2008, while making their biggest one-week jump last week in 13 years.
Meanwhile 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.
Read more: Sales of existing homes fell in May
“Purchase applications increased for the second straight week – driven mainly by conventional applications – and the ARM share of applications jumped back to over 10%,” wrote Joel Kan, an MBA economist. “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.”
Adjustable-rate mortgages offer lower interest rates and can generally be fixed for terms of five, seven or 10 years. While these loans are considered riskier, because they have the potential to adjust to higher or lower rates, they are underwritten much more strictly than they were during the last housing boom more than a decade ago that eventually led to an epic housing crash.
Buyer demand may also be increasing because the supply of homes for sale is finally growing. 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.
Applications to refinance a home loan fell 3% for the week and were 77% lower than the same week one year ago. The refinance share of mortgage activity decreased to 29.7% of total applications from 31.7% the previous week.
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