- Total mortgage applications rose 3.4 per cent week on week, according to the Mortgage Bankers Association
- Purchase applications increased 4 per cent, while refinancing applications climbed 3 per cent
- Adjustable-rate mortgages accounted for 11.3 per cent of applications, the highest share in more than a year
US mortgage applications increased for a second consecutive week as falling interest rates encouraged more borrowers to approach lenders, although demand remained significantly below levels recorded a year earlier.
Total mortgage application volume rose 3.4 per cent in the week, according to the seasonally adjusted index from the Mortgage Bankers Association (MBA).
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less fell to 7.37 per cent from 7.41 per cent. Points, including the origination fee, increased slightly to 0.76 from 0.75 for loans with a 20 per cent deposit.
Joel Kan, MBA vice-president and deputy chief economist, said the decline in rates had provided some relief to borrowers, with conventional mortgage applications showing a particularly noticeable rebound.
However, mortgage rates remained more than one percentage point higher than during the same week last year. Many existing homeowners also continue to benefit from lower borrowing costs, limiting the incentive to refinance.
Borrowers turn to adjustable-rate deals
Applications to refinance existing home loans increased 3 per cent during the week but remained 61 per cent lower than a year earlier. Around half of US borrowers have mortgage rates below 4 per cent, according to data from the Federal Housing Finance Agency’s National Mortgage Database.
Applications for home purchases rose 4 per cent week on week but were still 18 per cent lower than the same period last year.
Despite the recent easing in rates, affordability remains a challenge for prospective buyers. Mortgage costs are considerably higher than they were a few months ago, while house prices continue to rise. Concerns about the wider economy are also weighing on decisions, with some estate agents reporting that buyers are waiting for the outcome of the US midterm elections.
As borrowers look for ways to reduce their initial repayments, adjustable-rate mortgages (ARMs) are attracting greater interest. These loans typically offer a fixed interest rate for an initial period before adjusting in line with prevailing market rates.
ARMs accounted for 11.3 per cent of mortgage applications during the week, their highest share in more than a year. The average contract rate for five-year adjustable-rate mortgages fell to 6.41 per cent from 6.46 per cent.
While the lower initial rate can make an ARM more affordable than a fixed-rate loan, borrowers face the risk of higher repayments when the fixed period ends and the rate resets.
Mortgage rates were broadly unchanged at the start of the following week, according to a separate survey by Mortgage News Daily, as limited economic data left bond markets with little new information to assess.
The Federal Reserve was not expected to change its policy interest rate at its Wednesday meeting, but market attention was focused on comments from chair Kevin Warsh for clues about the outlook for monetary policy.
The latest figures suggest that even modest declines in borrowing costs can prompt a short-term recovery in mortgage demand. However, the continued weakness in purchase and refinancing applications compared with last year highlights the pressure that elevated rates and housing costs are placing on the US property market.
