Mortgage rates hit 5.37% the week of April 27.  This 5.37% is the highest level since 2009.

No Wonder Home Sales Are Declining

Increasing mortgage rates are definitely raining down hard on home sales.  Pending home sales dropped for the fifth month in a row in March, according to data from the National Association of REALTORS® (NAR). 

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That rain will pour down even harder as mortgage rates, 5.37% as of April 27, rose to their highest level since 2009.

Lawrence Yun, NAR’s Chief Economist, said, “…the sudden large gains in mortgage rates have reduced the pool of eligible homebuyers, and that has consequently lowered buying activity.  The aspiration to purchase a home remains, but the financial capacity has become a major limiting factor.”

Purchase Mortgage Demand Down

With mortgage rates increasing from 5.2% to 5.37% on 30-year fixed-rate conforming mortgages the week of April 27, the demand for purchase mortgages plunged -8% w/w and -17% y/y, according to a weekly lender survey done by the Mortgage Bankers Association (MBA). Rates for 15-year fixed-rate mortgages averaged 4.68%, an increase from 4.44% the previous week.

“Prospective homebuyers have pulled back this spring, as they continue to face limited options of homes for sale along with higher costs from increasing mortgage rates and prices,” said Joel Kan, MBA forecaster.  “The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months.”

(Before this latest rate jump to 5.37%, monthly mortgage payments were +31% y/y higher by the end of March, according to NAR.)

ARM Demand Soaring

Among homebuyers who can still afford to buy amid higher home prices and higher rates, demand for Adjustable-Rate Mortgages (ARMs) is spiraling.  Why?

The average five-year rate was 4.28%.  Sure, that average rate will be adjusted (just like the name of the mortgage implies) in an average of five years but who knows what the world of mortgages will look like in five years.

Within the last three months alone, ARM demand has doubled, according to the MBA.  ARM loans represented 17% of the dollar volume borrowers applied for last week.

Refinance Demand Plummeting

Last year at this time, refinance mortgages accounted for 61% of all mortgages.  Now, last year’s 61% has become 35% of all mortgages.

Refinance demand dropped -9% w/w and is now -71% y/y.

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Thanks to CNBC, Inman, National Association of REALTORS®, and Mortgage Bankers Association.

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