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Mortgage demand continues to weaken, still right around a 22-year low, but there was a sign in the weekly numbers that first-time buyers may be slowly returning.
Mortgage applications to purchase a home fell 1% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Volume was 21% lower than the same week one year ago. There was, however, a jump in demand for loans offering lower down payments.
“Last week’s purchase results varied, with conventional applications declining 2% and government applications increasing 4%, which is potentially a sign of more first-time homebuyer activity,” said Joel Kan, an MBA economist.
He also noted that the average purchase loan size continued to trend lower, as homebuying at the high end of the market weakens.
Mortgage rates increased for all loan types last week. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) rose to 5.65% from 5.45%, with points climbing to 0.68 from 0.57 (including the origination fee) for loans with a 20% down payment.
As a result of the sharp increase in rates, demand for loan refinances dropped 3% for the week and were 83% lower than the same week one year ago.
Borrowers also moved away from adjustable-rate loans, which are no longer offering the bargains they did just a few months ago.
“The spread between conforming fixed-rate loans and ARM loans narrowed to 84 basis points from over 100 basis points the prior week,” Kan said. “This movement made fixed rate loans relatively more attractive than ARMs, thereby reducing the ARM share further from highs seen earlier this year.”
Mortgage rates moved even higher to start this week, as the stock market sold off on renewed fears of a recession. Investors are waiting for what they expect to be hawkish sentiment from the Federal Reserve at a meeting later this week in Jackson Hole, Wyoming.