The numbers: After a brief uptick, mortgage applications resume their downward spiral as home buyers get hammered by steep mortgage rates.
As rates march towards 7%, buyers have pulled back from purchasing new homes, and homeowners hit the brakes on refinancing. Both declines were reflected in the market composite index, a measure of mortgage application volume, the Mortgage Bankers Association (MBA) said on Wednesday.
The market index fell 3.7% to 254.8 in the week ending September 23. A year ago, the index stood at 734.9.
It’s worth noting that Mortgage News Daily is reporting that rates have exceeded 7%, based on its daily survey.
The big picture: Home buyers likely jumped in to purchase homes last week, as seen by a tiny increase in apps, and then quickly retreated as rates climbed higher.
And it’s likely that buyer demand will remain depressed as higher mortgage rates are likely to persist through the rest of the year.
Mortgage rates are now at the highest level since mid-2008.
Frustrated by towering rates, some are turning to adjustable-rate mortgages, which may remind some of the Great Recession.
Prior to the last recession, more than 45% of mortgages issued between 2004 and 2006 were adjustable-rate mortgages, one report the St. Louis Fed said. In 2005, the ARM share of the dollar volume of mortgage originations reached nearly 45%, CoreLogic said.
“The ARM share reached 10% of applications and almost 20% of dollar volume,” Joel Kan, associate vice president of economic and industry forecasting at the MBA, said in a statement.
The last time ARMs slightly rose in popularly were at the end of June this year.
Key details: The refinance index plunged by 10.9%, and was down 84% compared to a year ago.
The purchase index — which measures mortgage applications for the purchase of a home — fell by 0.4% from the previous week.
The average contract rate for the 30-year mortgage for homes sold for $647,200 or less was 6.52% for the week ending September 23. That’s up from 6.25% the week before, the MBA said.
For homes sold for over $647,200, the average rate for the 30-year was 6.01%. The 15-year rose to 5.7%.
The rate for adjustable-rate mortgages, which comprised 10.4% of total applications, rose to 5.3%.
Market reaction: The yield on the 10-year Treasury note
rose above 3.9%.