It could be more listings on the market, or perhaps just fear that interest rates will move even higher, but homebuyers are showing more demand for mortgages. They are, however, turning even more to adjustable-rate mortgages (ARMs), which offer lower rates. That gives them an advantage as both rates and home prices continue to climb.

Mortgage applications to purchase a home rose 5% last week compared with the previous week, according to the Mortgage Bankers Association’s seasonally adjusted index. Demand was still 8% lower than the same week one year ago, but that annual drop is now shrinking.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($647,200 or less) increased to 5.53% from 5.36%, with points rising to 0.73 from 0.63 (including the origination fee) for loans with a 20% down payment. The rate on a 5-year ARM was 4.47%.

“Despite a slow start to this year’s spring home buying season, prospective buyers are showing some resiliency to higher rates. Purchase activity has now increased for two straight weeks,” said Joel Kan, an MBA economist, in a release. “More borrowers continue to utilize ARMs to combat higher rates. The share of ARMs increased to 11% of overall loans and to 19% by dollar volume.”

At the start of this year, when rates were still hovering near record lows, the ARM share was just 3% of all purchase applications. At 11% that is the highest share since March 2008.

ARMs offer lower rates which can be fixed for terms like five, seven, or 10 years. ARMs are fully underwritten like fixed-rate mortgages, and they require a down payment. This was not the case in the early 2000s when poorly underwritten, interest-only ARMs with short teaser periods were blamed for the epic housing crash.

While homebuyers are showing more interest, current homeowners have less interest in refinancing. Those applications dropped another 2% week to week and were 72% lower than a year ago. There is simply a very small pool of borrowers left who can benefit from a refinance at the current interest rates. Refinancing drove record lender profits in the first years of the coronavirus pandemic, when rates set more than a dozen record lows. Now that market has dried up.