The best sign yet – Record jump in mortgage applications

The Mortgage Bankers Association reported a record weekly increase in mortgage applications as rates fell on long term Fixed Rate Mortgages (FRM) last week. Freddie Mac reported rates down for the week ending December 3, as well, though the rates were higher than the MBAA reported rates from the week ending November 28, possibly indicating a minor increase in rates early this week. (The rates are not the same because the MBAA rates include jumbo mortgages and others that don’t conform to Freddie Mac standards. This usually means MBAA reports higher rates.)

According to Freddie Mac’s chief economist Frank Nothaft:

This week’s decline was the largest since the week of November 27th, 1981, and 30-year FRM rates are now almost a full percentage point lower since the last week in October.

As noted here before, there have been signals that there was plenty of pent-up demand in the housing market waiting for rates to drop or some signals of stability in the market. The big increase in rates confirms that again. According to Orawin Velz, Associate Vice President of Economic Forecasting of the Mortgage Bankers Association many buyers had been sidelined since rates rebounded after falling in August:

Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship. When rates plummeted following the Fed’s announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound.

Freddie Mac Conforming Rates At a Glance

  • 30-year FRM: 5.53%, 0.7 point
  • 15-year FRM: 5.33%, 0.7 point
  • 5-year hybrid ARM: 5.77%, 0.6 point
  • 1-year ARM: 5.02%, 0.5 point

Mortgage Bankers Association Average Mortgage Rates

  • 30-year FRM: 5.47%, 1.16 points*
  • 15-year FRM: 5.13%, 1.28 points
  • 1-year ARM: 6.61%, 0.52 points

* Points reported by Mortgage Bankers Association in this survey include origination fees as well as traditional discount points. Average rates are based on an 80% LTV loan. This means a loan amount no more than 80% of the property value as determined by the lower of the purchase price or appraised value. Typically this means a 20% down payment, though an 80% loan can also be achieved with a second mortgage carried by the seller or a third party lender for the difference between the actual down payment and 20%.

Mortgage Applications Surge with Large Drop in Rates in Latest MBA Weekly Survey

WASHINGTON, D.C. (December 3, 2008) — The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending November 28, 2008, which was a shortened week due to the Thanksgiving holiday.   The Market Composite Index, a measure of mortgage loan application volume, was 857.7, an increase of 112.1 percent on a seasonally adjusted basis from 404.4 one week earlier.  On an unadjusted basis, the Index increased 51.4 percent compared with the previous week and was down 21.9 percent compared with the same week one year earlier.
“Many borrowers missed an opportunity to take advantage when rates dropped sharply for a brief period when the GSEs were placed under conservatorship,” said Orawin Velz, Associate Vice President of Economic Forecasting. “When rates plummeted following the Fed’s announcement that it would buy GSE debt and MBS, many of those on the sidelines decided to quickly jump in and take advantage of lower rates before they began to rebound.”
The Refinance Index increased 203.3 percent to 3802.8 from the previous week and the seasonally adjusted Purchase Index increased 38.0 percent to 361.1 from one week earlier.  The Conventional Purchase Index increased 37.4 percent while the Government Purchase Index (largely FHA) increased 39.2 percent. All results include an adjustment to account for the Thanksgiving holiday. 
 
The four week moving average for the seasonally adjusted Market Index is up 29.7 percent this week.  The four week moving average is up 9.5 percent for the seasonally adjusted Purchase Index, while this average is up 56.1 percent for the Refinance Index.
The refinance share of mortgage activity increased to 69.1 percent of total applications from 49.3 percent the previous week. The adjustable-rate mortgage (ARM) share of activity decreased to 1.4 percent from 3.0 percent of total applications from the previous week.

LONG-TERM MORTGAGE RATES PLUMMET
Short-Term Rates Fall But Not So Dramatically

“After Federal Reserve actions to increase liquidity in the mortgage market, interest rates for fixed-rate mortgages (FRMs) took a dive,” said Frank Nothaft, Freddie Mac vice president and chief economist. “This week’s decline was the largest since the week of November 27th, 1981, and 30-year FRM rates are now almost a full percentage point lower since the last week in October.
“The recent plunge in rates contributed to the nearly 150 percent jump in conventional mortgage applications over the Thanksgiving week, led by almost a 300 percent surge in refinances, according to the Mortgage Bankers Association. Roughly three out of four mortgage applications were for refinance transactions, up from around half during the prior week.”

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