Refinance Apps Down Five Weeks in a Row. Purchase Demand Stalls After Brief Run Up

The Mortgage Bankers Association today released its Weekly Mortgage Applications Survey for the week ending December 10th, 2010. 

The MBA's loan application survey covers over 50% of all U.S. residential mortgage loan applications taken by mortgage bankers, commercial banks, and thrifts. The data gives economists a snapshot view of consumer demand for mortgage loans. In a low mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out a lower monthly payment. If consumers are able to reduce their monthly mortgage payment and increase disposable income through refinancing, it can be a positive for the economy as a whole (creates more consumer spending or allows debtors to pay down personal liabilities like credit cards). A falling trend of purchase applications indicates a decline in home buying demand, a negative for the housing industry and the economy as a whole.

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, decreased 2.3 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index decreased 2.7 percent compared with the previous week.

The Refinance Index decreased 0.7 percent from the previous week. This is the fifth straight weekly decline for the Refinance Index. The four week moving average is down 6.8 percent for the Refinance Index. The refinance share of mortgage activity increased to 76.7 percent of total applications from 75.2 percent the previous week.

The seasonally adjusted Purchase Index decreased 5.0 percent from one week earlier. The unadjusted Purchase Index decreased 8.6 percent compared with the previous week and was 16.6 percent lower than the same week one year ago.  The four week moving average is up 2.6 percent for the seasonally adjusted Purchase Index.

The average contract interest rate for 30-year fixed-rate mortgages increased to 4.84 percent from 4.66 percent, with points increasing to 1.34 from 0.94 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This is the highest 30-year fixed-rate observed in the survey since the beginning of May 2010. The effective rate also increased from last week.

The average contract interest rate for 15-year fixed-rate mortgages increased to 4.21 percent from 3.98 percent, with points increasing to 1.28 from 0.97 (including the origination fee) for 80 percent LTV loans. This is the highest 15-year fixed-rate observed in the survey since the beginning of June 2010. The effective rate also increased from last week.

Michael Fratantoni, MBA's Vice President of Research and Economics said...

"Not surprisingly, with rates up more than half a percentage point over the past month, refinance activity has declined sharply.  Home purchase applications dropped this week following three weeks of increases, but remain near levels last seen in early May."