As interest rates remain stubbornly high, many homebuyers and homeowners are shifting toward adjustable-rate mortgages in search of potential savings. Despite a slight drop in mortgage rates last week, overall demand for home loans declined again, signaling that affordability remains a major hurdle for buyers across the U.S. housing market.
Total mortgage application volume fell 4.7% from the previous week, according to the Mortgage Bankers Association’s (MBA) seasonally adjusted index. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $806,500 or less edged down to 6.43% from 6.46%. Points also slipped slightly to 0.60 from 0.61, including the origination fee, for loans with a 20% down payment. Compared with the same week last year, the rate was only 7 basis points lower, underscoring how little progress has been made in easing borrowing costs.
Refinance applications continued their recent slide, dropping 8% from the previous week. Despite the decline, refinance activity is still 18% higher than a year ago, suggesting that homeowners are capitalizing on even minor rate dips. “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, MBA’s senior vice president and chief economist.
Applications for home purchase loans also fell by 1% week over week but remained 14% higher than the same time last year. Purchase demand has been largely stagnant in recent months as buyers face elevated home prices and uncertainty about the broader economy. While inventory levels have improved somewhat, many potential sellers are pulling listings or holding off, waiting for stronger market conditions.
In response to these challenges, more borrowers are gravitating toward adjustable-rate mortgages (ARMs), which offer lower initial rates compared with traditional 30-year fixed loans. ARMs typically come with fixed-rate periods of up to 10 years before adjusting based on market conditions, which introduces more risk but can yield significant short-term savings.
“The ARM share increased to 9.5% last week from 8.4% the prior week,” Fratantoni noted. “Our survey shows 5/1 ARM rates are averaging nearly a full percentage point below 30-year fixed rates, and this differential is leading more purchase and refinance applicants to consider ARMs.”
So far this week, mortgage rates have remained relatively steady as bond markets stay calm amid the lack of new economic data due to the government shutdown. That lull could prove temporary, however, as markets await further clarity on inflation and interest rate policy in the months ahead.
