Mortgage Applications Up as Rates Sink to Four-Month Low

American mortgage applications climbed 12% last week as the lowest borrowing rates in four months spurred home buying. Loan refinancing rebounded as rates declined, giving consumers more cash to spend.The Mortgage Bankers Association’s gauge of applications to buy and refinance homes increased to 689.4, the highest since the first week of May, from 616.1 the week before. The index of applications to refinance home loans surged 21% to 1982.7.The average fixed rate on a 30-year mortgage declined to 5.75% last week from 5.8% the week before, even as the Federal Reserve raised its bank-lending target rate a quarter point to 1.5%. Slower economic growth in the second quarter has helped keep mortgage rates below 6%, spurring buying.“As mortgage rates have retreated in recent weeks both home buyers and homeowners have responded aggressively,” said the president of Insight Economics LLC, Steven Wood. “The Fed’s monetary policy tightening has failed to dampen housing related activity.”New home sales in May and June were the strongest two months on record, Commerce Department figures show. The mortgage bankers’ purchasing index rose 6.2% to 467.1, suggesting home demand remains strong. In January, the measure reached a record of 501.6.At the current 30-year fixed rate, borrowing costs for a $100,000 mortgage would total $583.57, compared with $536.21 when the rate was at an all-time low of 4.99% in June 2003.The latest 30-year rate is the lowest since the week ended April 2.“People are continuing to price in low interest rates,” said the chief economist at Action Economics in Boulder, Colo., Michael Englund. “On a yearover-year basis, mortgage rates are still quite low and even historically low.”Applications to refinance loans accounted for 41% of all applications, up from 37% a week earlier. The percentage of applications for adjustable-rate mortgages was little changed at 34%.“People keep saying that refinancing has had its last gasp, but the broader trend in interest rates remain downward,” Mr. Englund said. “The refinancing boost helps the economy, and mortgage applications for new homes is also stimulative because people have to purchase items to furnish that new home.”The amount of home equity converted into cash by home-loan refinancing probably will fall 48% this year to a four- year low of $71.7 billion, according to Freddie Mac, the no. 2 buyer of home loans. Equity extraction using cash-out loans, or mortgages refinanced at higher balances, reached a record $138.1 billion last year and helped spur consumer spending.Homeowners turned about $20 billion of home equity into cash by refinancing during the second quarter, down from $23 billion in the first, said a Freddie Mac economist, Amy Crew Cutts.The drop in equity extraction came as the dollar volume of loans refinanced at higher balances rose to $162.2 billion in the three months through June, from $134 billion in the first quarter, and as the total refinancing volume rose 30% to $416 billion, Mortgage Bankers Association data show.The rate on the 15-year fixed mortgage dropped to 5.15% last week from 5.16% the week earlier. The one-year adjustable rate mortgage rose to 3.95% from 3.85%.Mortgage rates tend to move with yields on long-term securities such as Treasury notes. Since reaching a high in June of 4.87%, the yield on the benchmark 10-year Treasury note has declined about three-quarters of a percentage point.“As long as inflation remains in check and the job numbers continue to fluctuate, mortgage rates will remain stable,” said the president of Americana Mortgage Group Inc., Bob Moulton.

Mortgage Applications Up as Rates Sink to Four-Month Low

Mortgage Applications Up as Rates Sink to Four-Month Low

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