t could be more listings on the market, or perhaps just fear that interest rates will move even higher, but homebuyers are showing more demand for mortgages. They are, however, turning even more to adjustable-rate mortgages (ARMs), which offer lower rates. That gives them an advantage as both rates and home prices continue to climb.
Mortgage applications to purchase a home rose 5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was still 8% lower than the same week one year ago, but that annual drop is now shrinking.
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.53% from 5.36%, with points rising to 0.73 from 0.63 (including the origination fee) for loans with a 20% down payment. The rate on a 5-year ARM was 4.47%.
“Despite a slow start to this year’s spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks,” said Joel Kan, an MBA economist, in a release. “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.”
At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008.
ARMs offer lower rates which can be fixed for terms like five, seven, or 10 years. ARMs are fully underwritten like fixed-rate mortgages, and they require a down payment. This was not the case in the early 2000s when poorly underwritten, interest-only ARMs with short teaser periods were blamed for the epic housing crash.
While homebuyers are showing more interest, current homeowners have less interest in refinancing. Those applications dropped another 2% week to week and were 72% lower than a year ago. There is simply a very small pool of borrowers left who can benefit from a refinance at the current interest rates. Refinancing drove record lender profits in the first years of the coronavirus pandemic, when rates set more than a dozen record lows. Now that market has dried up.
Source: CNBC.com, Diana Olick
Affordability Constraints Mount as Mortgage Rates and Home Prices Continue to Rise
WASHINGTON, DC – The Fannie Mae (FNMA/OTCQB) Home Purchase Sentiment Index® (HPSI) decreased by 4.7 points to 68.5 in April, its lowest level since May 2020, as surveyed consumers expressed heightened concerns about housing affordability and rising mortgage rates. All six of the index’s components decreased month over month, with a survey-high 76% of consumers indicating that they believe it’s a bad time to buy a home, up from 73% last month. Additionally, 73% of respondents expect mortgage rates to continue their recent ascent over the next 12 months, also a survey high. Year over year, the full index is down 10.5 points.
“In April, the HPSI fell to its lowest level since the first few months of the pandemic, as consumers continue to report difficult homebuying conditions amid the budget-tightening constraints of inflation, higher mortgage rates, and high home price appreciation,” said Doug Duncan, Fannie Mae Senior Vice President and Chief Economist. “The current lack of entry-level supply and the rapid uptick in mortgage rates appear to be adversely impacting potential first-time homebuyers in particular, evidenced by the larger share of younger respondents (aged 18- to 34) reporting that it’s a ‘bad time to buy a home.’ Additionally, consumer perception regarding the ease of getting a mortgage also decreased across nearly all surveyed segments this month, suggesting to us that the benefit of the recent past’s historically low mortgage rate environment appears to have diminished, and affordability is poised to become an even greater constraint going forward. This sentiment is consistent with our forecast of decelerating home sales through the rest of 2022 and into 2023.”
Home Purchase Sentiment Index – Component Highlights
Fannie Mae’s Home Purchase Sentiment Index (HPSI) decreased in April by 4.7 points to 68.5. The HPSI is down 10.5 points compared to the same time last year. Read the full research report for additional information.
- Good/Bad Time to Buy: The percentage of respondents who say it is a good time to buy a home decreased from 24% to 19%, while the percentage who say it is a bad time to buy increased from 73% to 76%. As a result, the net share of those who say it is a good time to buy decreased 8 percentage points month over month.
- Good/Bad Time to Sell: The percentage of respondents who say it is a good time to sell a home decreased from 74% to 72%, while the percentage who say it’s a bad time to sell remained unchanged at 21%. As a result, the net share of those who say it is a good time to sell decreased 2 percentage points month over month.
- Home Price Expectations: The percentage of respondents who say home prices will go up in the next 12 months decreased from 48% to 44%, while the percentage who say home prices will go down increased from 20% to 25%. The share who think home prices will stay the same decreased from 28% to 26%. As a result, the net share of Americans who say home prices will go up decreased 9 percentage points month over month.
- Mortgage Rate Expectations: The percentage of respondents who say mortgage rates will go down in the next 12 months increased from 4% to 5%, while the percentage who expect mortgage rates to go up increased from 69% to 73%. The share who think mortgage rates will stay the same decreased from 23% to 18%. As a result, the net share of Americans who say mortgage rates will go down over the next 12 months decreased 3 percentage points month over month.
- Job Loss Concern: The percentage of respondents who say they are not concerned about losing their job in the next 12 months decreased from 86% to 84%, while the percentage who say they are concerned remained unchanged at 11%. As a result, the net share of Americans who say they are not concerned about losing their job decreased 2 percentage points month over month.
- Household Income: The percentage of respondents who say their household income is significantly higher than it was 12 months ago decreased from 29% to 26%, while the percentage who say their household income is significantly lower increased from 13% to 14%. The percentage who say their household income is about the same increased from 53% to 56%. As a result, the net share of those who say their household income is significantly higher than it was 12 months ago decreased 4 percentage points month over month.
About Fannie Mae’s Home Purchase Sentiment Index
The Home Purchase Sentiment Index® (HPSI) distills information about consumers’ home purchase sentiment from Fannie Mae’s National Housing Survey® (NHS) into a single number. The HPSI reflects consumers’ current views and forward-looking expectations of housing market conditions and complements existing data sources to inform housing-related analysis and decision making. The HPSI is constructed from answers to six NHS questions that solicit consumers’ evaluations of housing market conditions and address topics that are related to their home purchase decisions. The questions ask consumers whether they think that it is a good or bad time to buy or to sell a house, what direction they expect home prices and mortgage interest rates to move, how concerned they are about losing their jobs, and whether their incomes are higher than they were a year earlier.
About Fannie Mae’s National Housing Survey
The most detailed consumer attitudinal survey of its kind, Fannie Mae’s National Housing Survey (NHS) polled approximately 1,000 respondents via live telephone interview to assess their attitudes toward owning and renting a home, home and rental price changes, homeownership distress, the economy, household finances, and overall consumer confidence. Homeowners and renters are asked more than 100 questions used to track attitudinal shifts, six of which are used to construct the HPSI (findings are compared with the same survey conducted monthly beginning June 2010). For more information, please see the Technical Notes. Fannie Mae conducts this survey and shares monthly and quarterly results so that we may help industry partners and market participants target our collective efforts to support the housing market. The April 2022 National Housing Survey was conducted between April 2, 2022 and April 25, 2022. Most of the data collection occurred during the first two weeks of this period. Interviews were conducted by PSB, in coordination with Fannie Mae.
Detailed HPSI & NHS Findings
For detailed findings from the Home Purchase Sentiment Index and National Housing Survey, as well as a brief HPSI overview and detailed white paper, technical notes on the NHS methodology, and questions asked of respondents associated with each monthly indicator, please visit the Surveys page on fanniemae.com. Also available on the site are in-depth special topic studies, which provide a detailed assessment of combined data results from three monthly studies of NHS results.