October 13, 2022: -Home Loans demand decreased once as rates surged higher, but one type of loan draws borrowers. Adjustable-rate mortgages, or ARMs, which offer more down rates, are witnessing renewed demand after getting very little interest over the last decade.

Total Home Loans application volume declined 2% in the previous week compared with the previous week, according to the Mortgage Bankers Association’s adjusted index, resulting from surging rates.

The average contract good rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200) increased to 6.81% from 6.75%, with points surging to 0.97 from 0.95 (including the actual fee) for loans with a 20% down payment. That is the top rate since 2006.

“The news that job growth and salary growth kept going on in September is an agreeing for the housing market, as increased incomes support housing demand. Although, it pushed off the possibility of any near-term pivot from the Federal Reserve on its calculations for additional rate hikes,” wrote Michael Fratantoni, chief economist of MBA, in a release.

The ARM share of applications was just below 12%. When rates were lower at the start of this year, that share was barely 3%, where it had been for a few years.

ARMs can be done for up to 10 years, but they are thought to be more difficult loans because the rate adjusts to the market rate. Rates have been so low that before rates started to surge, borrowers did not require to take on that additional risk.

Higher rates crushed refinance demand further, with applications off 2% for the week and 86% from the week. According to Black Knight, a mortgage technology and analytics

company, at this rate level, there are almost 150,000 borrowers who can help from a refinance because so many already have loans at far lower rates.

Mortgage rates moved even higher to start this week; one more survey from Mortgage News Daily has the 30-year fixed over 7%. All eyes are presently on the latest inflation report released last week. It could move rates decidedly in either direction.