The numbers: U.S. mortgage rates rose for the sixth week in a row with the 30-year mortgage rate hitting its highest level since November 2000. The rise caused mortgage demand to fall to the lowest level since 1995.
More home buyers are turning to adjustable-rate mortgages, or ARMs, with demand rising to the highest share of overall mortgages in 11 months, but it wasn’t enough to offset the sharp pullback in home buying.
The overall market composite index — a measure of mortgage application volume — fell in the latest week, according to the Mortgage Bankers Association (MBA) said on Wednesday.
The market index fell 6.9% to 166.9 for the week ending October 6 from a week earlier. A year ago, the index stood at 204.6.
Key details: High rates suppressed activity amongst home buyers as well as homeowners looking to refinance.
Buyer demand has dried up due to rising borrowing costs. The purchase index — which measures mortgage applications for the purchase of a home — fell 5.6% from last week.
Refinancing activity fell as well. The refinance index dropped 9.9%.
The average contract rate for the 30-year mortgage for homes sold for $726,200 or less was 7.7% for the week ending October 13. That’s up from 7.67% the week before, the MBA said.
The rate for jumbo loans, or the 30-year mortgage for homes sold for over $726,200, was 7.56%, down from 7.7% the previous week.
The average rate for a 30-year mortgage backed by the Federal Housing Administration fell to 7.36% from 7.4%.
The 15-year rose to 6.98% from 6.97% from the previous week.
The rate for adjustable-rate mortgages rose to 6.52% from last week’s 6.33%. ARMs now comprise 9.3% of all applications, which is the highest share in 11 months.
The big picture: As mortgage rates inch towards 8%, the U.S. housing market is seeing demand take a hit after hit as buyers’ purchasing power continues to erode with rising borrowing costs.
High rates also discourage potential home buyers who are looking to sell their home and move up or downsize, since they may have to swap an ultra-low mortgage rate for one over 7%.
ARMs continue to pique buyer interest, as seen in the data, as they offer the potential of a lower rate for a fixed period of time, before resetting at the prevailing rate.
What the MBA said: ”Purchase applications were 21% lower than the same week last year, as homebuying activity continues to pull back given reduced purchasing power from higher rates and the ongoing lack of available inventory,” Joel Kan, deputy chief economist and vice president at the MBA, said in a statement.
Market reaction: The yield on the 10-year Treasury note
BX:TMUBMUSD10Y
was over 4.8% in early morning trading Wednesday.
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