Pushed by record low mortgage rates, applications for both refinancing and new home purchases rose strongly over the last week, showing a promising sign for the real estate market, according to the Mortgage Bankers Association. Refinances rose 21%, while purchase applications were up 8.5%.
“After five weeks of steadily declining rates to yet another new low, borrowers who had been on the fence jumped off, which factored into refinance activity surging more than 20%,” said Michael Fratantoni, MBA’s chief economist. “Refinance application volumes are now close to the highest level this year.”
Although applications for home purchases increased for the week, buying activity remains on the weak side as home buyers hold off from making decisions. Weak consumer confidence and high unemployment are hurting home sales. But purchase applications for conventional purchase mortgages are now at their highest level since the beginning of May following the expiration of the federal tax credit.
“Last week saw a big jump in applications for FHA loans to purchase homes. We surmised that this was due to potential buyers wanting to beat the stricter FHA standards that went into effect October 4th. This conjecture was confirmed by the fact that this week FHA applications fell back to a level closer to the average seen over the past four months,” said Fratantoni.
Refinances rose to make up 83.1% of applications from 78.9% last week, the highest since January 2009. The average contract interest rate for 30-year fixed-rate mortgages declined to 4.21% from 4.25% with points increasing to 1.02 from 1.00 on 80% loan-to-value (LTV) ratio loans. The 30 year contract rate is the lowest recorded since the survey has been kept.
The 15 year fixed-rate mortgage dropped to 3.62% from 3.73% with points. The 15 year contract rate is the lowest recorded in the survey, while the previous low was observed last week.