MBA forecaster Joel Kan sees the uptick in loan requests as a “potentially a good sign for the spring home buying season, which has seen a slow start thus far.”

Demand for purchase loans picked up last week as mortgage rates took a breather from their meteoric rise, raising hopes that spring home sales won’t be floored by the one-two punch of soaring home prices and financing costs.

Purchase loan applications during the week ending April 29 were up 4 percent from the week before, with demand for conventional, FHA and VA loans all on the rise, the Mortgage Bankers Association said in releasing data from its latest Weekly Mortgage Applications Survey.

Joel Kan

“This is potentially a good sign for the spring home buying season, which has seen a slow start thus far,” MBA forecaster Joel Kan said in a statement Wednesday.

Looking back a year, however, purchase loan applications were still down 11 percent, and demand for refinancing has fallen by 71 percent as mortgage rates have increased by more than two percentage points during that time.

“The purchase market remains challenged by low levels of housing inventory and rapid home-price gains, as well as the affordability hit from higher mortgage rates that are forcing prospective buyers to factor in higher monthly payments,” Kan said.

If mortgage rates rise by another half a percentage point — or if home prices go up another 5 percent — affordability will hit the worst levels on record, mortgage data and tech provider Black Knight warned in a report released Monday.

Rising rates have prompted a growing proportion of borrowers to turn to adjustable-rate mortgage (ARM) loans, or to pay lenders thousands of dollars in up-front “points” to get a lower rate, Black Knight said.

Requests for ARMs made up around 9 percent of mortgage applications last week, “which is well below the 30 percent mark observed in the mid-2000s,” Kan said.

But because ARM buyers tend to apply for bigger loans — $725,600 on average, last week — ARM loans accounted for 17 percent of loan applications by dollar volume, the survey found.

The MBA reported average rates for the following types of loans last week:

  • For 30-year fixed-rate conforming mortgages (loan balances of $647,200 or less), rates averaged 5.36 percent — essentially unchanged from 5.37 percent the week before. With points decreasing to 0.63 from 0.67 (including the origination fee) for 80 percent loan-to-value ratio (LTV) loans, the effective rate decreased.
  • Rates for 30-year fixed-rate jumbo mortgages (loan balances greater than $647,200) averaged 4.92 percent, up from 4.89 percent the week before. Although points decreased to 0.43 from 0.47 (including the origination fee) for 80 percent LTV loans, the effective rate also increased.
  • For 30-year fixed-rate FHA mortgages, rates averaged 5.27 percent, down slightly from 5.29 percent. With points decreasing to 0.85 from 0.88 (including the origination fee) for 80 percent LTV loans, the effective rate decreased.
  • Rates for 15-year fixed-rate mortgages, popular with homeowners refinancing existing loans, remained unchanged at 4.68 percent. But with points decreasing to 0.76 from 0.80 (including the origination fee) for 80 percent LTV loans, the effective rate decreased.
  • For 5/1 ARMs, rates averaged 4.25 percent, down slightly from 4.28 percent the week before. Although points increased to 0.78 from 0.74 (including the origination fee) for 80 percent LTV loans, the effective rate also decreased from last week.

All eyes will be on the Federal Reserve this week, as the Federal Open Market Committee wraps up a two-day meeting Wednesday.

The Fed is expected to raise the short-term federal funds rate by at least half a percentage point to combat rising inflation and provide more insight into its plans to trim nearly $9 trillion in government debt and mortgage-backed securities from its balance sheet. Those moves, although widely expected by bond market investors, could put more pressure on mortgage rates in the weeks ahead.

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Email Matt Carter

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