Seasonality Strikes! Mortgage Purchase Applications Fall By -1.96% WoW, Refi Apps Rise By 0.23% (Purchase Apps Up By 26% Versus Same Week Last Year)

Covid through the mortgage market for a loop. Normally mortgage purchase applications peak in late April or early May, but in 2020 unadjusted purchases applications peaked in mid-June thanks to Covid-19.

Here is a chart showing the seasonality of mortgage purchase applications. And how mortgage purchase application are 26 percent higher than the same week one year ago.

Refi applications? Essentially flat with an increase of only

A Farewell To ARMs: The Adjustable-Rate Mortgage Share Dwindles To 2% In Latest Mortgage Bankers Association Report)

Back in 2011, former HUD and Freddie Mac Chief Economist Michael Lea wrote an article entitled “Do We Need the 30-Year Fixed-Rate Mortgage?” We argued that plain vanilla ARMs (without teaser rates and other tricked-up products during the housing bubble) offered consumers advantages over fixed-rate mortgages (FRMs).

The answer to that question has just been answered: adjustable rate mortgages as a percentage of all mortgages has fallen to its lowest level since financial crisis and The Great Recession.

The reason? First, consumers flock towards FRMs when mortgage rates decline. In part, thanks to The Federal Reserve’s interest rate policies (as shown below).

Lea and I argued that there are certain advantages to ARMs for consumers (see paper at link), such as a lower mortgage rate on average.

Also, empirically mortgage rates on average fall negating the “fear factor” of mortgage rates rising on an ARM reset.

The latest mortgage applications volumes from the Mortgage Bankers Association shows that the ARM% has dwindled to 2%.

5/1 ARM rates (purple) are currently higher than fixed mortgages rates. The 15-year mortgage rate is the lowest.

Yes, it is A Farewell To ARMs, but not as Ernest Hemingway envisioned.

MBA Mortgage Refi Applications UP 8.23% WoW While Purchase Apps DOWN -1.42% (Mortgage Credit Availability Sinks)

I was watching Stuart Varney on Fox Business and he excitedly announced that MBA applications were up 4.56% WoW in the latest MBA report.

True, but applications for a purchase mortgage were down -1.42% WoW.

But refinancing application were up 8.23% WoW as mortgage rates continue to fall since the Covid outbreak.

Mortgage credit availability plunged as mortgage rates hit all-time low.