Mortgage Rates Edge Higher as Applications Rise Amid Geopolitical Uncertainty
Mortgage rates in the U.S. increased slightly during the week of May 15, 2023, but applications for both home purchases and refinancing surged, signaling renewed buyer interest despite market volatility, according to the Mortgage Bankers Association (MBA).
Why Did Mortgage Rates Rise Slightly Last Week?
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances of $832,750 or less rose to 6.60% from 6.57%, according to the MBA’s seasonally adjusted index. This increase followed a period of heightened volatility driven by geopolitical tensions in the Middle East, which influenced broader financial markets. Mike Fratantoni, senior vice president and chief economist at the MBA, noted that while rates edged up, some borrowers encountered lower rates depending on market conditions.
What Factors Are Influencing Mortgage Market Volatility?
Geopolitical developments, particularly in the Middle East, contributed to market fluctuations, according to Matthew Graham, chief operating officer at Mortgage News Daily. “The market is already priced for the median economic forecast,” Graham wrote, adding that upcoming U.S. consumer price index (CPI) data could further impact rates. The Federal Reserve’s monetary policy and inflation trends remain critical variables for borrowers and analysts alike.
How Are Homebuyers and Refinancers Responding?
Total mortgage application volume increased by 10.8% for the week, with refinancing applications rising 15% and purchase applications climbing 7%, per the MBA. Refinancing activity was 20% higher than the same period in 2022, though rates remain significantly higher than the 3.33% recorded in May 2022. “Some demand may have been pushed forward due to early spring market volatility, with buyers seeking to secure loans before summer slows activity,” Fratantoni said.
What Role Are Adjustable-Rate Mortgages Playing?
Adjustable-rate mortgages (ARMs) gained traction, accounting for 8.6% of total applications. The average rate for a five-year ARM was 5.96%, according to the MBA. Analysts suggest ARMs may appeal to buyers seeking lower initial payments, though their long-term risks remain a concern in a rising rate environment.
What’s Next for Mortgage Rates?
With the U.S. CPI report due in late May 2023, rates could experience further movement. Mortgage News Daily’s Graham emphasized that “actual numbers could cause volatility in either direction” if they deviate from forecasts. Homebuyers and refinancers are advised to monitor economic indicators and consult with lenders for personalized guidance.