Mortgage demand down, riskier ARM applications up as rates hit 13-year high

April 27 (UPI) -- Higher mortgage rates in the United States have pushed down applications nationwide and caused homebuyers to explore riskier loans with lower rates, an industry report said Wednesday.

The Mortgage Bankers Association said in its assessment of the U.S. housing market that total applications dipped by 8.3% last week as the rate for a 30-year fixed-rate mortgage reached its highest level in over a decade.

The rate rose from 5.2% to 5.37% last week, the report noted -- which is the highest since 2009 and 2 points above this time last year (3.17%).

The rising rates are partly influenced by the Federal Reserve's decision at its last policy meeting to raise key rates to control inflation, which has risen over the past year at the highest rate in 40 years.

Analysts say that the declining application volume may indicate a shift in the housing market over the near term.

"The recent decrease in purchase applications is an indication of potential weakness in home sales in the coming months," MBA Chief Economist Joel Kan said in a statement Wednesday.

Almost certainly as a result of the rising rates, more U.S. homebuyers are turning to adjustable-rate mortgages -- which offer lower rates now for a shorter term, but can dramatically increase once the term expires and the rates are reset according to market conditions. Those mortgages, called ARMs, are considered to be riskier than a traditional 30-year fixed rate loan.

The average rate last week for an ARM was about 4.3%, the MBA report said, and applications for ARMs rose by about 9% -- twice the volume it was just a few months ago.