Mortgage Applications Up Again
The Mortgage Bankers Association(MBA) released their report on new mortgage applications Wednesday, and it showed purchase mortgage applications rose for a second consecutive week, with demand higher than at any time since May.
Demand for refinance loans, however, did fall for a fifth week in a row as strict lending criteria and the struggling US job market kept homeowners from taking advantage of very low interest rates. The MBA’s seasonally adjusted index of mortgage applications, which includes both purchase and refinance applications, fell by .2 percent for the week ending October 1st. The four week moving average, meanwhile, was down by 3 percent. The moving average is used to smooth out seasonal volatility.
The group’s seasonally adjusted purchase index, which economists view as an early indicator of future home sales, increased 9.3 percent to its highest level since early May. The overall increase in purchase activity, according to an MBA official, was mainly driven by a surge in Federal Housing Association (FHA) applications, which jumped by over 17 percent, while more conventional purchase applications rose by just 3.5 percent. Economists believe the surge in FHA applications is an attempt by borrowers to get applications in before new FHA requirements go into effect October 4th.
The overall real estate market has been slumping since the expiration of federal tax credits for homebuyers. Buyers were required to sign purchase agreements by April 30th in order to qualify for the credits. Buyers were originally required to close on the homes by June 30th, but that deadline was later moved back to September 30th.
The National Association of Realtors (NAR) reported earlier in the week that August’s pending sales of existing homes were at their highest level in four months. The MBA’s seasonally adjusted index of refinance applications fell about 2.5 percent, according to Wednesday’s report. Borrowing costs, the report showed, averaged 4.25 percent on a 30 year fixed rate mortgage for the week. That’s .14 percent lower than the previous week, and the lowest level on records dating back to 1990.
The slowing in refinancing activity is viewed by economists as a bad sign for the economy, as refinancing typically leads to an increase in consumer spending. In addition, many homeowners, provided their credit rating is high enough, are able to lower monthly payments through refinancing to a level that can help them to avoid foreclosure. The report also showed the average rate for a 15 year fixed rate mortgage was 3.73 percent, slightly lower than the record-low set the previous week. One-year ARMS, meanwhile, averaged 7.11 percent for the week, up slightly from the previous week. -Jason Fendell