Total mortgage application volume fell 2% last week compared with the week prior as the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $647,200 or less rose from 6.75% to 6.81%. As interest rates continue to soar, prospective homebuyers are turning to adjustable-rate mortgages (ARMs), which can be fixed for up to 10 years but pose a risk for borrowers when the rate eventually adjusts to the market rate, CNBC reports.
Despite the uncertainty associated with ARMs, demand for riskier home loans is on the rise as priced out buyers search for more affordable paths to homeownership during a housing correction.
“The news that job growth and wage growth continued in September is positive for the housing market, as higher incomes support housing demand. However, it also pushed off the possibility of any near-term pivot from the Federal Reserve on its plans for additional rate hikes,” wrote Michael Fratantoni, MBA’s chief economist in a release.
The average rate for 5/1 ARMs, which has a fixed rate for the first five years, increased slightly, but was still lower, at 5.56%. The ARM share of applications was just under 12%. When rates were lower at the start of this year, that share was barely 3%, where it had been for several years.
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