U.S. Mortgage Applications For Purchase Rise But Applications To Refinance Remain Low

The Mortgage Bankers Association latest report on mortgage applications provided further evidence that home purchases are recovering but that the refinancing boom is most assuredly over. Overall, mortgage applications recovered 10.9% last week and recovered most of the prior week's decline. However, applications nevertheless remained near the lowest level since last November.

The interest in home buying has improved, in part due to distress sales. Purchase applications rose 6.7% last week to the highest level since they spiked in early April. Since the early-February low, purchase application have risen 21.1% as new and existing home sales have recovered.

The interest in refinancing an existing mortgage, conversely, has virtually dried up. Applications to refinance did rise 15.2% last week. However, that made up just half of the prior week's decline and left them at the lowest level since November. Since their peak in January, refinance applications have fallen by three quarters.

Since the beginning of this year, fixed-rate mortgage applications have fallen by slightly more than one half while adjustable-rate mortgages have doubled.

The end of the refinancing boom can be traced, in part, to the rise in interest rates. The effective interest rate on a conventional 15-year mortgage slipped last week to 5.09% but that remained up from the April low of 4.69%. For a 30-year mortgage, the rate also slipped last week to 5.57% but remained up from the 4.81% low. Interest rates on 15- and 30-year mortgages are closely correlated (>90%) with the rate on 10-year Treasury securities. Up also were adjustable 1-Year mortgage rates which remained stable at 6.61% versus the low near 6.0% during January. Nevertheless, the rate remained down from the 7.07% peak reached last fall.

During the last ten years there has been a (negative) 79% correlation between the level of applications for purchase and the effective interest rate on a 30-year mortgage. Moreover, during the last ten years there has been a 61% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales.

The figures for weekly mortgage applications are available in Haver's SURVEYW database.

The Mortgage Bankers Association surveys between 20 to 35 of the top lenders in the U.S. housing industry to derive its refinance, purchase and market indexes. The weekly survey covers roughly 50% of all U.S. residential mortgage applications processed each week by mortgage banks, commercial banks and thrifts. Visit the Mortgage Bankers Association site here.

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