Mortgage Applications Rise Despite Higher Interest Rates: What You Need to Know

    After dropping to a 28-year low the previous week, mortgage demand recovered slightly, even though interest rates marched higher. We’ll be referencing this article from CNBC.

    The Mortgage Bankers Association’s seasonally adjusted index reported a 7.4% increase in total mortgage application volume last week, despite the average contract interest rate for 30-year fixed-rate mortgages rising to 6.79% from 6.71%. With points rising from 0.77 to 0.80, this is the highest level since November 2022 and 270 basis points higher than a year ago.

    The data shows that there was an uptick in applications even with higher interest rates, but this was in comparison to two weeks of declines to very low levels, including a holiday week. Joel Kan, an MBA economist, noted that it is the start of the traditionally busy spring market, and there is a chance that the increase in demand may continue.

    However, this rise in demand is not enough to benefit homeowners looking to refinance their loans. According to calculations from Black Knight, there were barely 200,000 borrowers who could get monthly savings from a refinance, compared with well over 2 million who could have benefited at the rate one year ago. This is due to the increase in interest rates, making it less beneficial for homeowners to refinance their loans.

    The share of adjustable-rate mortgage (ARM) applications has risen, indicating that more buyers are stretching to afford today’s still pricey housing market. ARMs offer lower interest rates at higher risk, which may be more appealing to buyers who are looking to save money in the short term.

    The rise in mortgage rates has caused concern for investors, with bond yields rising following Federal Reserve Chairman Jerome Powell’s statement that rate hikes could accelerate again. Mortgage rates loosely follow the yield on the 10-year Treasury, meaning that if bond yields continue to rise, mortgage rates will likely increase as well.

    In conclusion, although there was an increase in demand for mortgage applications last week, the rise in interest rates is causing concern for homeowners looking to refinance their loans. The increase in adjustable-rate mortgage applications suggests that more buyers are willing to take on higher risks to afford today’s expensive housing market. However, with Federal Reserve Chairman Powell’s statement causing concern for investors, it remains to be seen how the housing market will fare in the coming months.

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