Housing Market Enjoys Rebound From Lower Interest Rates

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Despite expectations for the Federal Reserve to keep dialing down bond purchases, mortgage applications and refinancing activity increased as interest rates fell. For the week ended January 17, 2014, applications for home loans gained 4.7 percent on a seasonally adjusted basis from one week earlier, according to data from the Mortgage Bankers Association.

There have only been a handful of increases over the past eight months as the housing market is starting to return to a more sustainable pace, but the Refinance Index also jumped 10 percent from the previous week. However, the Purchase Index declined 4 percent and was 15 percent lower than the same week one year earlier.

Overall, the refinance share of mortgage activity accounted for 64 percent of total applications, compared to 62 percent a week earlier. That is the highest level in a month. Interest rates have rebounded higher in recent months, but a disappointing jobs report earlier this month could keep rates under control for the near future as the Federal Reserve maintains a loose monetary policy. In December, the U.S. economy added only 74,000 jobs, the smallest monthly gain in three years and a far cry from the 200,000 jobs estimated by economists.

The average interest rate for a 30-year fixed-rate mortgage decreased from 4.66 percent to 4.57 percent, which is the lowest rate since November 2013. Meanwhile, the average rate for a 15-year fixed-rate mortgage fell from 3.72 percent to 3.68 percent. Looking ahead, Zillow expects mortgage rates to exceed 5 percent for the first time since early 2010 this year.

Despite the upbeat mortgage report, two of the nation’s most well-known banks recently issued a warning signal to the housing industry. Wells Fargo (NYSE:WFC), the largest home lender in the country, said that residential mortgage originations totaled just $50 billion in the fourth-quarter, the lowest amount since 2008 and down sharply from $80 billion and $112 billion in the previous two quarters.

JPMorgan Chase (NYSE:JPM), the nation’s second largest home lender, also reported a sharp contraction in mortgage activity. In the fourth-quarter, lower mortgage fees and related income drove non-interest revenue down by 17 percent compared to a year earlier. JPMorgan also said mortgage originations plunged 54 percent year-over-year to $23.3 billion. Meanwhile, Bank of America (NYSE:BAC) witnessed a 46-percent plunge in mortgage originations during the quarter.

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