Home Mortgage Mortgage Demand Barely Budges As Homebuyers Turn Away From Riskier Adjustable-Rate Loans Amid Affordability Crunch
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Mortgage Demand Barely Budges As Homebuyers Turn Away From Riskier Adjustable-Rate Loans Amid Affordability Crunch

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U.S. mortgage demand was largely unchanged last week as borrowers pulled back from adjustable-rate mortgages, or ARMs, while elevated housing costs continued to weigh on buying activity, according to weekly data released Wednesday by the Mortgage Bankers Association.

An ARM, or adjustable-rate mortgage, typically offers a lower initial interest rate than a fixed-rate mortgage but resets to market rates after a set period, making it riskier if borrowing costs rise.

Total mortgage application volume increased just 0.04% week over week on a seasonally adjusted basis, signaling a largely stagnant lending environment.

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The average contract rate for a 30-year fixed mortgage with conforming balances of $832,750 or less edged down to 6.57% from 6.59%. Meanwhile, the average rate for a 5-year ARM rose to 5.79% from 5.68%, narrowing the rate advantage ARMs typically offer.

ARM loans accounted for just 7.6% of total applications, the lowest share since January and down from 9.6% in mid-May.

ARM Advantage Fades

Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association, said mortgage rates eased slightly as oil prices declined, helping support modest application activity.

Applications to refinance fell 1% from the prior week but remained 9% higher than the same week a year ago. Purchase applications rose 1% week over week and were 3% higher year over year.

The declining appeal of ARMs suggests borrowers are increasingly unwilling to take additional rate-reset risk for relatively limited upfront savings.

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Affordability Crisis Still Weighs

The softer mortgage demand comes as housing affordability remains a major challenge.

Morgan Stanley recently said U.S. housing affordability may not return to pre-2022 levels even if mortgage rates fall to 4% or 5%, with mortgage payments still consuming a much larger share of household income than historical averages.

The affordability squeeze has also begun shifting negotiating power toward buyers. Recent market data showed 46% of U.S. home sellers offered concessions in May, the highest May reading on record, as elevated rates and economic uncertainty weakened demand.



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