Home loan demand hits highest since late May

Robust demand for mortgage refinancing and applications for home loans

U.S. mortgage applications jumped last week to their highest since late May as interest rates tumbled below 5 percent, data from an industry group showed on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Sept 18 increased 12.8 percent to 668.5, the highest level since the week ended May 22.

While consumers clamored for home refinancing loans, their appetite for applications to buy a home, a tentative early indicator of sales, was also robust. The overall trend bodes well for the hard-hit U.S. housing market, which has been showing signs of stabilization.

Eric Belsky, executive director at Harvard University's Joint Center for Housing Studies, said several months of improvement in new and existing home sales is a positive sign.

"Low interest rates on mortgages are important to the fledging housing recovery," he said.

This has made a significant impact on the affordability front and where they may be headed could be key to a sustained recovery, he said.

"While an uptick may bring buyers anxious that rates will keep rising into the market temporarily, a material increase in rates could threaten the rebound.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.97 percent, down 0.11 percentage point from the previous week. It was the first time since the week ended May 22 that the rate on this most widely used home loan was below 5 percent.

However, the rate remained above the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990. Nevertheless, interest rates were well below year-ago levels of 6.08 percent.

Low mortgage rates, high affordability, and the government's $8,000 tax credit for first-time home buyers — part of the stimulus bill — have helped stabilize the market.

But with the tax credit set to end November 30 and distressed properties making up a high proportion of sales, the flurry of activity masks uncertainty about the long-term outlook.

The MBA's seasonally adjusted purchase index rose 5.6 percent to 288.3, driven by applications for government-insured loans. Indeed, the government purchase index was at the highest level ever recorded in the survey and the share of purchase applications that were government-insured was 45.7 percent, the highest share since November 1990, the MBA said.

The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 4.3 percent.

The Mortgage Bankers seasonally adjusted index of refinancing applications increased 17.4 percent to 2,881.5, with the index at its highest since the week ended May 29.

The refinance share of applications increased to 63.8 percent from 61.0 percent the previous week, but remained significantly lower than the peak of 85.3 percent in the week to January 9. The adjustable-rate mortgage share of activity increased to 6.7 percent, up from 6.0 percent the prior week.

The U.S. housing market has suffered the worst downturn since the Great Depression of the 1930s and its impact has rippled through the recession-hit economy, as well as the rest of the world.

Housing construction hits highest in 9 months!

Most of the gains come from apartments; single-family homes still lag












WASHINGTON - Housing construction rose in August and the number of newly laid-off workers seeking unemployment aid fell unexpectedly last week, adding to signs the recession has ended.

Still, the reports suggested a slow and fragile economic recovery. In part, that's because the increased housing starts were due solely to a surge in construction of apartment buildings — while the much larger single-family homes sector fell for the first time in six months. And jobless claims remain far above the levels associated with a healthy economy.

Even as the housing industry begins to recover from its worst downturn in decades, a glut of unsold homes and record levels of home foreclosures are weighing on the industry.

Construction of multifamily homes and apartments rose 1.5 percent to an annual rate of 598,000 units, the highest level since November, the Commerce Department said Thursday. That was slightly lower than the 600,000-unit pace economists had expected. And it remains more than 70 percent below the peak rate hit in 2006.

The tentative improvements in housing are most likely a rebound "from unsustainably weak results ... reinforced by a temporary boost to demand" from the $8,000 first-time homebuyer tax credit that ends Dec. 1, Joshua Shapiro, chief economist at MFR Inc., wrote in a note to clients.

"Gains from here on will probably be much more difficult to achieve," due to high unemployment, tight credit and a large number of new and existing homes already on the market, he said.

Applications for building permits, a gauge of future activity, rose a 2.7 percent in August to an annual rate of 579,000 units, slightly below the 580,000 level that had been forecast. Permits for single-family homes dipped 0.2 percent but rose for multifamily units by 15.8 percent.

The 1.5 percent rise in housing starts followed a small 0.2 percent dip in July. The August strength reflected a 25.3 percent surge in construction of multifamily units, a volatile sector that had fallen 15.2 percent in July.

The single-family sector dipped 3 percent last month to an annual rate of 479,000 units, the first setback following five straight monthly gains.



Paul Dales, U.S. economist at Capital Economics, noted that housing starts remain 74 percent below their 2006 peak and predicted the housing recovery would be a very "long-winded process."




Meanwhile, initial claims for unemployment benefits dropped last week to a seasonally adjusted 545,000 from an upwardly revised 557,000 the previous week, the Labor Department said Thursday. Wall Street economists expected claims to rise by 5,000, according to Thomson Reuters.

The decline was the third in the past four weeks. The four-week average, which smooths out fluctuations, dropped 8,750 to 563,000. Despite the improvement, that's far above the 325,000 per week that is typical in a healthy economy.

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Rates for 30-year home loans ticked down for the second-straight week, remaining close to record lows reached over the spring.

The average rate for a 30-year fixed mortgage was 5.07 percent this week, down from 5.08 percent a week earlier, mortgage company Freddie Mac said Thursday. Rates, while above the record low of 4.78 percent hit in the spring, are still at attractive levels for people looking to buy a home or refinance.

Rates should stay low for another month or two as government efforts to keep them low remain effective, predicts Michael Larson, an interest rate and real estate analyst with Weiss Research.

But it won’t last forever. Rates will eventually trend upward, Larson said, as the economy starts to turn around and concerns return about how long overseas investors can stomach massive levels of U.S. debt.

“Over the longer-term, there’s going to be general upward pressure on interest rates across the spectrum,” he said. “Mortgage rates will be caught up in that.”

To prop up the housing market and help the economy revive from the worst recession since the 1930s, the Federal Reserve is spending $1.25 trillion on mortgage-backed securities, which has driven down rates on home loans.

That money is set to run out by winter, though some analysts expect the central bank to add more money to the program or allow it to last longer by gradually reducing its purchases.

“What the Fed does not want is to see a sharp pickup in mortgage rates,” said Greg McBride, senior financial analyst with Bankrate.com. “That would throw cold water on a recovering housing market.”

With rates low, borrowers are seizing on the opportunity. Mortgage applications for refinancing surged 22.5 percent for the week ending Sept. 4 in the biggest one-week jump since mid-March. According to the Mortgage Bankers Association, applications for home purchases were up 9.5 percent.

Despite government efforts to prop up the mortgage market, qualifying for a loan is still tough. Lenders have tightened their standards dramatically, so the best rates are available to those with solid credit and a 20 percent down payment.

Freddie Mac collects mortgage rates on Monday through Wednesday of each week from lenders around the country. Rates often fluctuate significantly, even within a given day.

The average rate on a 15-year fixed-rate mortgage fell to 4.5 percent, from 4.54 percent last week, according to Freddie Mac.

Rates on five-year, adjustable-rate mortgages averaged 4.51 percent, down from 4.59 percent a week earlier. Rates on one-year, adjustable-rate mortgages rose to 4.64 percent from 4.62 percent.

The rates do not include add-on fees known as points. The nationwide fee for loans in Freddie Mac’s survey averaged 0.7 point for 30-year and 15-year loans, 0.5 point for five-year loans and 0.6 point for one-year loans.