Rising Mortgage Rates: As mortgage rates continue to rise, homebuyers are exploring riskier mortgage options to make homeownership more attainable.
Last week, the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($726,200 or less) saw a slight dip, settling at 7.86% from 7.90%. While this offers some relief, it’s still significantly higher, by 80 basis points, compared to the same period last year. Points also decreased, falling to 0.73 from 0.77 (including the origination fee) for loans with a 20% down payment, according to the Mortgage Bankers Association.
Amidst rising fixed-rate mortgages, adjustable-rate mortgages (ARMs) are gaining favor. ARMs are considered riskier because their rates are fixed for shorter terms, but they do offer potential savings. The average contract interest rate for 5/1 ARMs dropped to 6.77% last week.
Joel Kan, an MBA economist, noted, “As higher rates continue to impact affordability and purchasing power, ARM loans increased almost 10 percent last week and continued to gain share, growing to 10.7 percent of all applications.” This surge has pushed the ARM share of mortgage applications to its highest level in nearly a year.
Despite the shift towards ARMs, the overall mortgage demand is on the decline. Applications for refinancing home loans fell by 4% for the week, seasonally adjusted, and were down by 12% compared to the same period last year. Meanwhile, applications for mortgages to purchase homes saw a 1% drop for the week and were 22% lower year over year.
Joel Kan added, “The impact of higher rates continued to be felt across both purchase and refinance markets. Purchase applications decreased to their lowest level since 1995 and refinance applications to the lowest level since January 2023.”
With mortgage rates on the rise, the housing market eagerly awaits news from the Federal Reserve to see if there will be any relief from these higher interest rates.
Also read: Canadian Banks Mortgage Risks: A Brief Respite in 30-Year Loans, but the Sword of Damocles Remains
Our Reader’s Queries
Why mortgage rates are going up?
Mortgage rates are on the rise due to the Fed’s efforts to tackle the highest inflation in almost four decades. By increasing the federal funds rate, the aim is to reduce spending as consumers face higher interest rates on mortgages, credit cards, and other loans. This move is part of a broader strategy to curb inflation and stabilize the economy. As a result, borrowers may need to adjust their budgets and consider alternative financing options to manage their expenses.
Will mortgage rates go down in 2023?
After a steady increase in 2022, mortgage rates remained elevated for a longer period than anticipated in 2023. However, experts in the real estate industry predict that rates will gradually decrease throughout 2024. This positive outlook is a relief for those looking to invest in the housing market.
Will we ever see 3 interest rates again?
It seems highly improbable that mortgage rates in the US will ever dip down to 3% again, at least not in the near future.
Are mortgage rates expected to drop in 2024?
As inflation begins to ease, mortgage rates are predicted to drop in the coming years. However, this process may take some time. According to Realtor.com experts, the average mortgage rate for 2024 is expected to be around 6.8%, with a projected rate of 6.5% by the end of the year. While this news may be encouraging for those looking to purchase a home, it’s important to keep in mind that these predictions are subject to change based on various economic factors.