Mortgage Demand Hits Highest Level in Two Months

The Mortgage Bankers Association announced today [1] that mortgage applications, based on the group's seasonally adjusted market index, rose 8.5% last week to the highest level since early October. The bulk of the activity was spurred by current homeowners refinancing existing mortgages to lock in interest rates that continue to hover around all-time lows. Demand for loans to refinance existing loans was up 11.1%. Refinancings represent about three-fourths of all applications. But purchasing activity is on the upswing too. Requests for loans to buy a home went up by 4%.

Here’s how rising mortgage applications could impact home builders:

• The four-week moving average of the purchase index is up 2.3%, a sign that more buyers are in the market.
• Interest rates rose slightly, pushing potential buyers to jump into the market before rates rise further. The average interest rate for a 30-year fixed rate mortgage rose slightly to 4.88% from 4.79%. The record low of 4.61% was set last March.
• 15-year fixed rate mortgages increased slightly to 4.33% from 4.27%
• Rates for one-year ARMs decreased to 6.55%
• More buyers are expected to enter the market since an $8,000 government tax credit for first-time buyers was recently extended.
• The government program now also includes move-up buyers, a good sign for builders in that market. Move-up buyers are eligible for a $6,500 tax credit for loan closings completed by June 30.