Refinance and Purchase Loan Applications Fall Heading into Holidays

The Mortgage Bankers Association today released the Weekly Survey on Mortgage Application Activity for the week ending December 18, 2009.

The survey covers over 50 percent of all US residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts.  The data gives economists a look into consumer demand for mortgage loans.  A rising trend of mortgage applications indicates an increase in home buying interest, a positive for the housing industry and economy as a whole.  Furthermore, in a low mortgage rate environment, such a trend implies consumers are seeking out lower monthly payments which can result in increased disposable income and therefore more money to spend on discretionary items or to pay down other debt.

In last week's release, new loan application activity increased 0.3 percent on a seasonally adjusted basis from the week ending December 4.  The Refinance Index increased 0.9 percent while the Purchase Index decreased 3.6 percent from a week earlier.  On an unadjusted basis the Market Composite Index was 0.3 percent lower than the previous week.The refinance share of mortgage activity increased to 75.2 percent of all applications from 74.4 percent a week earlier.  This is the highest market share for refinances since the week ended April 24, 2009. The average contract interest rate for a 30-year fixed-rate mortgage increased to 4.92 percent from 4.88 percent with points, including the origination fee, decreasing to 1.08 from 1.17 for 80 percent loan to value (LTV) ratio loans.

In the most recent report, loan application volume fell 10.7 percent.  The Refinance Index decreased 10.1 percent from the previous week and the seasonally adjusted Purchase Index decreased 11.6 percent from one week earlier. 

The four week moving average for the seasonally adjusted Market Index is down 0.2 percent.  The four week moving average is down 1.0 percent for the seasonally adjusted Purchase Index, while this average is up 0.6 percent for the Refinance Index. The refinance share of mortgage activity increased to 75.9 percent of total applications from 75.2 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 3.8 percent from 4.1 percent of total applications the previous week.

The average contract interest rate for 30-year fixed-rate mortgages remained flat at 4.92 percent, with points increasing to 1.23 from 1.08 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Seasonal distractions combined with rising mortgage rates are not the best motivation for prospective home buyers and fence sitting refinancers. With that in mind, it's not surprising that loan demand fell in the previous week.

I was doing some deep thinking and came to the realization that when mortgage rates fall, loan apps rise and when mortgage rates rise, loan apps decline. Crazy correlation right? (please note sarcasm). Just for fun I put together a chart to illustrate this complex relationship. The hot teal box is recent week's data, notice rising rates and less loan apps! (haha Happy Holidays :-D)

As a result of MBA offices being closed Monday, December 28 through Friday, January 1, the Weekly Applications Survey results will not be released on December 30 for the week ending December 25, 2009. Release of the survey will resume on Wednesday, January 6, 2010 at 7 AM with results for the two weeks prior.