More home buyers are reaching for the ARMs. Adjustable-rate mortgages generally offer a lower introductory mortgage rate that is locked in for five, seven, or 10 years before then adjusting.

As mortgage rates rapidly rise, some buyers may be getting priced out, unless they lock in an ARM, which may have an introductory rate closer to the level of fixed-rate mortgages when they started their house hunt.

The average contract interest rate for a 30-year fixed-rate mortgage rose to 5.53% last week. The rate on a 5-year ARM, in comparison, was 4.47%, according to the Mortgage Bankers Association.

The demand for adjustable-rate mortgages has reached a 14-year high as buyers hunt for lower rates. At the beginning of the year when mortgage rates were still near record lows, the share of mortgages with adjustable rates was just 3% of all purchase applications. Now, the share of ARMs rose to 11% of overall mortgage loans, the MBA reports.

“More borrowers continue to utilize ARMs to combat higher rates,” says Joel Kan, an MBA economist.

Even as home prices and rates climb, mortgage demand has remained resilient. Mortgage applications to purchase a home increased 5% last week compared to the previous week. “Despite a slow start to this year’s spring homebuying season, prospective buyers are showing some resiliency to higher rates,” Kan says. “Purchase activity has now increased for two straight weeks.”

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As home prices continue to increase, homeowners are getting richer and richer. About 45% of mortgaged residential properties in the U.S. were considered “equity rich” in the first quarter, up from about 32% a year earlier, according to a new report from ATTOM Data Solutions. Equity rich means that the combined estimated amount of the loan balance on the home was no more than 50% of the home’s estimated market value.

“Homeowners continue to benefit from rising home prices,” says Rick Sharga, executive vice president of market intelligence for ATTOM. “Record levels of home equity provide financial security for millions of families and minimize the chance of another housing market crash like the one we saw in 2008. But these higher home prices and rising interest rates make it extremely challenging for first-time buyers to enter the market.”

Equity growth likely will continue for the remainder of the year, but home price increases are predicted to moderate, Sharga says.

The highest levels of equity-rich properties were in the West during the first quarter, with eight of the top 10 states located in that region, ATTOM Data Solutions reports. The list of states with the most equity-rich property was led by Idaho (with 68.8% of mortgaged homes equity-rich), Vermont (68%), Utah (63.6%), Washington (60.9%), and Arizona (60.9%).

The states where the share of equity-rich mortgaged homes increased the most in the fourth quarter of 2021 compared to the first quarter of 2022 were:

• New Mexico: from 35.3% in the fourth quarter to 43.4% in the first quarter
• Florida: from 46.6% to 53.6%
• California: from 53.7% to 60.5%
• South Carolina: from 35% to 41.2%
• Montana: from 40.5% to 45.7%

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Mortgage rates continue to push higher, but home buyers aren’t spooked. Mortgage applications for home purchases moved 5% higher last week compared to the previous week, and buyer competition remains elevated in many markets.

Even as costs rise, buyers remain focused on their homeownership aspirations. The 30-year fixed-rate mortgage rose to a 5.30% average last week, up from 2.94% just a year ago, Freddie Mac reports.

High inflation and the Fed’s tightening policy are the main drivers behind rising rates, Nadia Evangelou, National Association of REALTORS®’ senior economist and director of forecasting, writes on the association’s blog.

Mortgage rates have risen more than 2 percentage points since the beginning of the year. The monthly mortgage payment has increased by about $520 since the first week of January, when rates averaged 3.2%, Evangelou notes.

Still, “home buyers continue to show resilience even though rising mortgage rates are causing monthly payments to increase by about one-third as compared to a year ago,” says Sam Khater, Freddie Mac’s chief economist. “Several factors are contributing to this dynamic, including the large wave of first-time home buyers looking to realize the dream of homeownership. In the months ahead, we expect monetary policy and inflation to discourage many consumers, weakening purchase demand and decelerating home price growth.”

Freddie Mac reports the following national averages with mortgage rates for the week ending May 12:

• 30-year fixed-rate mortgages: averaged 5.30%, with an average 0.9 point, up from last week’s 5.27% average. Last year at this time, 30-year rates averaged 2.94%.
• 15-year fixed-rate mortgages: averaged 4.48%, with an average 0.9 point, dropping from last week’s 4.52% average. A year ago, 15-year rates averaged 2.26%.
• 5-year adjustable-rate mortgages: averaged 3.98%, with an average 0.3 point, rising from last week’s 3.96% average. A year ago, 5-year ARMs averaged 2.59%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

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With home prices rising, home buyers are bringing higher down payments to make their offers more attractive to sellers. Buyers are offering about twice as much cash for down payments as they did two years ago, according to realtor.com® data.

Buyers, on average, offered a $28,000 down payment in the first quarter. In 2020, down payments averaged averaged $14,000.

The percentage of down payments has grown, too. In the first quarter of 2020, buyers averaged a 10.9% down payment on the purchase price, compared to 13.1% in the first quarter of this year.

Median home list prices rose 26.1% over that same period from 2020 to 2022, according to realtor.com®.

“During the pandemic, people were not spending as much on entertainment and travel and received stimulus payments, which enabled them to put more cash down on homes,” says Hannah Jones, realtor.com® economic data analyst.

Several Florida metro areas posted the largest increases in down payments, led by Cape Coral. Down payments there rose by 174.7% from the first quarter of 2021 to the first quarter of 2022. The average buyer had a down payment of $42,000, according to the realtor.com® report.

However, the largest overall down payment averages for a home were in Silicon Valley’s San Jose, Calif., at 23.7% of the price of a home—$290,000, according to the report.

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Fifty-six percent of home buyers went with the first mortgage rate offer they received, according to a new survey from LendingTree of more than 1,000 homeowners. But nearly half of those who gathered multiple quotes reported that they saved money by doing so—46% of borrowers who shopped around said the first offer they received was not the lowest rate.

Overall, only about a quarter of survey respondents said they received offers from two lenders, while 14% got offers from three, the survey shows.

“Though many people might not realize it, shopping around for a mortgage before you buy can help you get a lower rate and save tens of thousands of dollars over the lifetime of your loan,” says Jacob Channel, LendingTree’s senior economic analyst.

Women, baby boomers, and low-income borrowers were the least likely to shop around for mortgage rates, the survey found.

Real estate professionals may be key to helping borrowers find a lender. The survey reports that agents are the top way buyers connect to a lender. Fifty-one percent of homeowners first met with a real estate agent to begin the homebuying process before meeting with a bank.

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The 30-year fixed-rate mortgage fell slightly this week, a temporary retreat after weeks of steady increases. The 30-year fixed-rate mortgage averaged 5.25%, Freddie Mac reports. Rates dropped following the 10-year Treasury yield trend this week. Last week’s average was 5.30%.

“Economic uncertainty is causing mortgage rate volatility,” says Sam Khater, Freddie Mac’s chief economist. “As a result, purchase demand is waning, and homebuilder sentiment has dropped to the lowest level in nearly two years. Builders are also dealing with rising costs, meaning this posture is likely to continue.”

Freddie Mac reports the following national averages with mortgage rates for the week ending May 19:

• 30-year fixed-rate mortgages: averaged 5.25%, with an average 0.9 point, dropping from last week’s 5.30% average. Last year at this time, 30-year rates averaged 3%.
• 15-year fixed-rate mortgages: averaged 4.43%, with an average 0.9 point, falling from last week’s 4.48% average. A year ago, 15-year rates averaged 2.29%.
• 5-year adjustable-rate mortgages: averaged 4.08%, with an average 0.2 point, rising from last week’s 3.98% average. A year ago, 5-year ARMs averaged 2.59%.

Freddie Mac reports commitment rates along with average points to better reflect the total upfront cost of obtaining the mortgage.

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Reprinted with permission