ADJUSTABLE RATE MORTGAGE APPLICATIONS DOUBLE IN APRIL

During April’s third week, the number of applications for adjustable rate home mortgages doubled from the last quarter of 2021 as interest rates for 30-year, fixed-rate mortgages climbed to their highest since 2009.

Fixed-rate loans averaged 5.37 percent late last month, compared to 5.20 percent the week before. The rate averaged 3.17 percent a year earlier.

Adjustable rate mortgages (ARMs) allow buyers to get a loan at a lower rate, sometimes below market, but banks can raise the rate at fixed intervals.

The average rate for the week for a five-year ARM was 4.28 percent, allowing more people to qualify for a loan that could have at the 5.37 average fixed rate.

ARMs’ proportion of applications was 9 percent for the week, twice the number from three months earlier, and 17 percent of the dollar volume applied for.

However, higher interest rates quenched demand overall, with the number of mortgage applications to buy a house down 8 percent for the week and 17 percent year on year.

Applications to refinance a mortgage slipped 9 percent during the week and plunged 71 percent from a year previous.

“The recent decrease in purchase applications is an indication of potential weakness in home sales in coming months,” Joel Kan, an economist with the Mortgage Bankers Association, told CNBC.

PUBLISHER’S NOTE: The rise in the number of ARM applications calls up nasty memories of the Great Recession, which was triggered partly by eager home buyers signing up for ARMs, then being unable to cover their new mortgage payments when the rates went up.

When that happened, the housing market crashed and took the rest of the fragile economy down with it.

Controls have been implemented since then to prevent similar catastrophes. 

Still, a rising proportion of ARM mortgages portends a rising number of home foreclosures in the future, especially with inflation rampant and a recession pending. However, minus a wild card, while we see home prices decreasing as interest rates continue to rise, we do not forecast a housing market crash.