Refinance Demand Up as Mortgage Rates Hit One Month Low

The Mortgage Bankers Association (MBA) today released it's Weekly Mortgage Applications Survey for the week ending January 7, 2011. 

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 falling mortgage rate environment, a trend of increasing refinance applications implies consumers are seeking out lower monthly payments. 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 (may boost consumer spending. Also allows debtors to pay down personal liabilities faster). A trend of declining purchase applications implies home buyer demand is shrinking.

Excerpts from the Release...

The Market Composite Index, a measure of mortgage loan application volume, increased 5.0 percent on a seasonally adjusted basis from one week earlier.  On an unadjusted basis, the Index increased 6.4 percent compared with the previous week.  

The Refinance Index increased 7.7 percent from the previous week. This is the third consecutive weekly increase in refinance applications and is the highest Refinance Index observed since the beginning of December.  The four week moving average is up 2.3 percent . The refinance share of mortgage activity increased to 73.0 percent of total applications from 72.1 percent the previous week.  This is the highest refinance share observed since the week ending December 10, 2010.

The seasonally adjusted Purchase Index decreased 1.9 percent from one week earlier. The unadjusted Purchase Index increased 3.1 percent compared with the previous week and was 16.0 percent lower than the same week one year ago.  The four week moving average is down 0.8 percent.

The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.77 percent from 4.78 percent, with points increasing to 1.20 from 0.91 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.  The effective rate increased from last week.  

The average contract interest rate for 15-year fixed-rate mortgages increased to 4.16 percent from 4.15 percent, with points decreasing to 0.90 from 1.01 (including the origination fee) for 80 percent LTV loans. The effective rate also decreased from last week.

Michael Fratantoni, MBA's Vice President of Research and Economics, says:

"Mortgage rates have moved somewhat lower since the beginning of the year, as mixed data on the job market continue to cloud the outlook for the economy. Refinance applications have picked up, as borrowers take advantage of lower rates, but purchase applications remain quite low, indicating that home sales are unlikely to pick up any time soon."

Mortgage Rates: Varying Degrees of Opportunity Presented  <----borrowing cost/note rate chart included in that post.

Mortgage Rates: GSE Policy Shift Affects Borrowing Costs  <---- important alert for all borrowers in that post.