Surge in Adjustable-Rate Mortgage Demand Reflects Buyers' Struggle with Expensive Housing Market

As mortgage rates reach their highest level in over two decades, homebuyers are increasingly turning to adjustable-rate mortgages (ARMs) to afford homes. The average contract interest rate for 5/1 ARMs decreased to 6.77% last week, prompting a nearly 10% increase in ARM loans. However, overall mortgage demand continues to decline, with applications to refinance falling 4% and applications to purchase a home dropping 1%. The impact of higher rates is being felt across both the purchase and refinance markets, with purchase applications at their lowest level since 1995 and refinance applications at their lowest level since January 2023.