U.S. Mortgage Applications Rise 3.4% as ARM Share Hits 11.3%

U.S. mortgage application volume rose 3.4% last week on a seasonally adjusted basis as fixed rates eased and adjustable-rate mortgages (ARMs) reached their largest share of applications in more than a year.

The average contract rate for 30-year fixed mortgages with conforming loan balances of $832,750 or less fell to 7.37% from 7.41%. Points, including origination fees, edged up to 0.76 from 0.75 for borrowers making a 20% down payment. The quoted rate remained more than a percentage point above its level for the same week last year.

Applications to buy homes increased 4% from the previous week but remained 18% below the same week a year earlier. Refinance applications gained 3% week over week but stood 61% below their year-earlier level. The total index measures requests for home purchase and refinancing, not completed sales.

About half of borrowers have mortgage rates below 4%, while current rates are more than a percentage point above the same week last year. That gap helps explain why refinancing activity remains far below its year-earlier level despite the weekly increase.

ARMs made up 11.3% of applications, the highest share in more than a year. The average contract rate for 5/1 ARM contracts fell to 6.41% from 6.46%. Borrowers seeking savings have increasingly turned to adjustable loans with lower initial rates. An ARM holds its rate fixed during an initial period, then adjusts to current market rates. That can change a borrower's payments when the initial term ends, making these loans riskier than fixed-rate mortgages.

Earlier coverage put ARMs at 10.5% of applications. The latest increase followed a 5.3% weekly decline in mortgage applications.

“The decline in rates gave borrowers some relief, with applications rebounding slightly, particularly conventional applications,” said Joel Kan, vice president and deputy chief economist at the Mortgage Bankers Association.

The Federal Reserve was not expected to announce a change in its interest rate at Wednesday’s meeting. Comments from Federal Reserve Chair Kevin Warsh could still move markets.