U.S. mortgage demand jumps as refinancing and purchase applications rise

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US mortgage demand rises

Highlights

Total mortgage application volume rises 10.8% last week, with 30-year fixed mortgage rates increasing to 6.60% from 6.57%.
Refinance applications jump 15% week-over-week and are 20% higher year-on-year, while purchase applications rise 7% weekly and 4% annually.
ARM share climbs to 8.6% as borrowers seek lower initial rates, with near-term rate direction hinging on upcoming CPI data and market reaction.

Mortgage application gains and rate moves

According to CNBC and the Mortgage Bankers Association, total mortgage application volume rises 10.8% last week from the previous week on a seasonally adjusted basis. The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less increases to 6.60% from 6.57%, while points decline to 0.63 from 0.67, including the origination fee, for loans with a 20% down payment.

Mike Fratantoni, the association's senior vice president and chief economist, says mortgage rates are volatile as news from the Middle East continues to drive markets. He says that although the average rate is slightly higher, some borrowers still find windows with somewhat lower borrowing costs.

Refinance applications rise 15% for the week and are 20% higher than the same week a year earlier. Purchase applications increase 7% from the prior week and are 4% above year-earlier levels.

Borrower behavior and market outlook

The pickup in demand suggests some buyers may be making a final push before the slower summer period, after earlier rate swings unsettled the spring housing market. Borrowers may also be turning more to adjustable-rate products, with the ARM share of total activity climbing to 8.6% and the average rate on a 5-year ARM at 5.96%.

Mortgage rates start this week flat, according to a separate reading from Mortgage News Daily, but the next move may depend on the government's monthly consumer price index release. Matthew Graham, chief operating officer at Mortgage News Daily, says markets are already priced for the median economic forecast, and a materially higher or lower reading could trigger rate volatility in either direction.

Our earlier coverage of the May U.S. CPI forecast focused on expectations for inflation to re-accelerate, driven largely by higher gasoline and broader energy costs tied to Middle East tensions. We also noted that markets were watching core inflation for signs that fuel-price pressure could spill into services, shaping Federal Reserve policy expectations and, in turn, interest-rate sensitive sectors.

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