What the Decrease in Mortgages Says About the Housing Market

What’s causing the dip in mortgage applications? As with most situations, the answer is complicated. Rising mortgage rates that now sit above the 5 percent mark have dampened consumer interest in refinancing, as money is no longer considered ultra-cheap. These higher rates may also be culling the number of buyers who feel compelled to act now to invest in a home.

Supply Chain Challenges Continue

While the reports of rising wages generally tend to increase housing demand, this market is uniquely different, as housing supply continues to be a challenge. The traditional release valve for limited inventory, the construction industry continues to battle supply chain problems from raw materials to resources, resulting in slower than projected new home builds coming to fruition.

Popularity of Adjustable-Rate Mortgages Soars

Adjustable-Rate Mortgage (ARM) applications have doubled while other types of mortgage applications have dipped. According to Mortgage Bankers Association Associate VP of Economic and Industry Forecasting Joel Kan, “In a period of high home-price growth and rapidly increasing mortgage rates, borrowers continued to mitigate higher monthly payments by applying for ARM loans.”

How ARMs Work

As the name implies, ARMs offer a fixed rate for a set period of time before adjusting. The fixed-term period for an ARM can be set to five, seven, or 10 years. At the end of the term, the rate adjusts to the current market rate. ARMs are considered a riskier option than a traditional mortgage because of unknown future market conditions. Yet, the explosion of applications demonstrates that buyers are optimistic that the rates will decrease in the future.

Competitive Mortgage Options

ARMs are yet another option in a mortgage lender’s toolbox to help prospective homeowners carve an affordable pathway for getting into the home of their dreams. If you’d like to know more about ARM and other mortgage options, schedule time on my calendar.