“The housing market remains sluggish as mortgage rates inch up for a second consecutive week,” said Sam Khater, Freddie Mac’s chief economist. “Consumer concerns about rising rates, inflation and a potential recession are manifesting in softening demand. As a result of these factors, we expect house price appreciation to moderate noticeably.”
Meanwhile, the average five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) edged down four basis points to 4.31%. As rising rates and affordability issues continue to take their toll, many lenders use ARMs as a tool to address these challenges and originate more loans.
ARMs have grown more popular in recent months due to higher mortgage rates, accounting for 9.5% of mortgage activity, according to the Mortgage Bankers Association. However, LendingTree reported that the share of ARMs being offered to borrowers with riskier credit scores has also grown.
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“While the findings of our study are not necessarily a cause for concern in the immediate future, if the trend of ARMs becoming more common and being offered to borrowers with lower scores continues, then ARMs may once again contribute to a future housing crisis,” said LendingTree senior economist Jacob Channel. “Because of this, it is very important for both lenders and borrowers to know the risks associated with adjustable-rate mortgages and to not become too cavalier about issuing/seeking out these types of loans.”