Demand for riskier adjustable-rate mortgages (ARMs) has declined as their rate advantage over traditional fixed-rate loans continues to shrink, according to the latest data from the Mortgage Bankers Association (MBA) [1]. The average rate for a 5-year ARM increased to 5.79% from 5.68%, while the average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($832,750 or less) decreased slightly to 6.57% from 6.59% [1]. The spread between ARMs and 30-year fixed-rate mortgages has narrowed, making ARMs less attractive to borrowers. As a result, ARM loans accounted for just 7.6% of all mortgage applications last week, the lowest share since January and down from a high of 9.6% in mid-May [1].
Overall mortgage application volume was nearly flat, increasing just 0.04% compared with the previous week [1]. Applications to refinance a home loan fell 1% for the week but remained 9% higher than the same week one year ago, when the average rate on the 30-year fixed mortgage was 22 basis points higher [1]. Applications for a mortgage to purchase a home rose 1% and were 3% higher than the same week one year ago [1].
Joel Kan, MBA's vice president and deputy chief economist, noted that mortgage rates eased slightly last week as oil prices declined, leading to a modest increase in mortgage applications, with an uptick in purchase activity offsetting a smaller decline in refinances [1]. Kan also highlighted that purchase applications remain ahead of 2025's pace and have shown year-over-year growth for almost three months, as prospective homebuyers find opportunities in markets with ample inventory and easing home-price growth [1].
Despite these modest gains, buyers continue to face challenges from inflation and uncertainty in the broader economy, which may be tempering overall demand for mortgages, particularly riskier loan products like ARMs [1].
CONCLUSION
The narrowing rate advantage of ARMs has led to a decline in demand for these riskier mortgages, while overall mortgage application volume remains flat. Modest increases in purchase applications suggest some resilience in the housing market, but ongoing economic uncertainty continues to weigh on borrower sentiment.