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Homebuyers Showing ‘Some Resiliency’ to Higher Rates

Demand for purchase mortgages increases for the second week in a row, but borrowers are increasingly turning to adjustable-rate loans.

From an article by MATT CARTER at (a subscription may be required)

Couple hugging in front of their home.

Image by: MoMo Productions/Getty Images.

According to a weekly survey of lenders by the Mortgage Bankers Association, homebuyers continue to show signs rising mortgage rates won’t deter them. According to a weekly survey of lenders by the Mortgage Bankers Association (MBA), demand for purchase mortgages increased for the second week.

Data from the MBA’s Weekly Mortgage Applications Survey released Wednesday showed demand for purchase loans was up a seasonally adjusted 5 percent last week compared to the week before but down 8 percent from a year ago.

“The increase in mortgage applications last week was driven by a strong gain in application activity for conventional and government purchase loans, even as mortgage rates rose to their highest level – 5.53 percent – since 2009,” said MBA forecaster Joel Kan, in a statement. “Despite a slow start to this year’s spring homebuying season, prospective buyers show some resiliency to higher rates. As a result, purchase activity has increased for two straight weeks.”

The survey showed rising rates had hit the refinancing market harder, with demand for mortgage refi down 2 percent from the week before and 72 percent from a year ago.

Borrowers are increasingly turning to adjustable-rate mortgage (ARM) loans, with requests for ARMs up 19.7 percent week-over-week and 49 percent from a year ago. Requests for ARM loans accounted for 10.8 percent of all applications last week, and at $740,400, the average ARM loan request was near twice the average fixed-rate loan request of $379,400. That means borrowers seeking ARM loans accounted for 19.4 percent of applications by dollar volume.

In addition to resorting to ARM loans, borrowers have become more willing to pay “points” to buy down their interest rate, according to an analysis by mortgage data and technology provider Black Knight.

Although mortgage rates have climbed relentlessly this year, some relief could be in sight after Federal Reserve policymakers detailed plans to trim the Fed’s $9 trillion balance sheet last week. While the Fed will let up to $17.5 billion in mortgage debt roll off the books in June, July, and August, that’s a less aggressive approach than some inflation hawks had advocated.

After raising more than two total percentage points this year — from 3.409 percent on Jan. 3 to 5.593 percent on May 6 — rates on 30-year fixed-rate mortgages declined Monday and Tuesday, retreating to 5.490 percent, according to the Optimal Blue Mortgage Market Indices (OBMMI).


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