Mortgage Applications Increase 0.8%, ARM Share Reaches 8%

Mortgage applications in the United States experienced a modest increase of 0.8% for the week ending March 8, 2024, according to data released by the Mortgage Bankers Association (MBA) on March 13, 2024. This uptick follows a previous week's decline, indicating a slight recovery in borrower activity. The MBA's Weekly Mortgage Applications Survey, which surveys approximately 75% of the U.S. retail residential mortgage loan application volume, provides a snapshot of the housing finance market.

Within this overall increase, a notable trend observed was the growing popularity of adjustable-rate mortgages (ARMs). The share of ARM loans in the total mortgage application mix rose to 8.0% for the week ending March 8, 2024. This figure represents the highest proportion of ARM applications seen in the past five weeks, suggesting a potential shift in borrower strategy as they seek to take advantage of initial lower interest rates compared to fixed-rate options. The MBA's data further breaks down the ARM share by product type, with ARMs accounting for 7.7% of conventional loans and 11.9% of FHA loans.

The refinance index also saw a slight increase of 1.0% over the previous week, although it remained significantly lower than levels seen a year ago. The seasonally adjusted purchase index, which measures demand for home purchases, increased by 0.7% from the week prior. Despite the recent gains, both the refinance and purchase indices are down by 17% and 20% respectively compared to the same week in 2023, highlighting the persistent challenges in the housing market, such as elevated home prices and interest rates.

The MBA's survey also tracks interest rates for various loan types. For the week ending March 8, 2024, the average contract interest rate for 30-year fixed-rate mortgages (FRMs) with conforming loan balances ($766,550 or less) decreased to 6.90% from 6.98% the previous week. This decrease in the benchmark 30-year fixed rate may have contributed to the overall rise in application volume. For jumbo loans (loan balances over $766,550), the average rate also saw a slight dip to 6.76% from 6.85%.

Rates for ARMs also showed a slight decrease. The average contract interest rate for 5/1 ARMs decreased to 6.22% from 6.31% the week before. This decline in ARM rates, coupled with their increasing share, underscores a strategic move by some borrowers to mitigate higher fixed-rate costs. The MBA's data provides crucial insights into borrower behavior and market dynamics, reflecting the ongoing interplay between interest rates, economic conditions, and housing demand.