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Economy in Brief

U.S. Mortgage Refinance Applications Surge With Lower Rates
by Tom Moeller May 26, 2010

Lower interest rates are encouraging mortgage refinancings, but not so much new home purchases. The Mortgage Bankers Association reported that mortgage applications jumped last week and for May they've risen 11.5% from April. The May increase, however, just made up an April decline.

Mortgage refinancings jumped for the third consecutive week to the highest level since last October. Conversely, applications to purchase a home dropped sharply with the expiration of the Federal tax credit for home purchase. During the last ten years there has been a 51% correlation between the y/y change in purchase applications and the change in new plus existing single family home sales. The correlation has lessened recently.

The effective fixed interest rate on conventional 15-year mortgages averaged 4.50% during the latest week, the cycle low. For 30-year mortgages the rate also fell to an average 5.02%. Interest rates on fixed 15-year and 30-year mortgages are closely correlated (near-90%) with the rate on 10-year Treasury securities. Rates on adjustable one-year mortgages rose during the month to 6.93%, its highest since mid-2008.

BA Mortgage Applications (SA, 3/16/90=100) 05/21/10 05/14/10 05/07/10 Y/Y 2009 2008 2007
Total Market Index 633.5 569.2 578.1 -19.4% 736.4 642.9 652.6
  Purchase 185.7 192.1 263.6 -27.6 263.5 345.4 424.9
  Refinancing 3,257.4 2,783.0 2,430.8 -16.3 3,509.2 2,394.1 1,997.9
15-Year Mortgage Effective Interest Rate (%) 4.50 4.53 4.52 4.82 (05/09) 4.85 5.9 6.2
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