Are Mortgage Applications Finally Showing Signs of Life?

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After a steady decline over the past year, mortgage applications finally showed signs of life as interest rates moved lower. In the latest update from the Mortgage Bankers Association, for the week ended April 11, applications for home loans increased 4.3 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index gained 5 percent.

The report is a pleasant surprise, as there has been a steady slide in mortgage applications over the past year, with the housing market returning to a more sustainable pace. As the chart above shows, applications are still near their worst level in years. The Refinance Index jumped 7 percent from the previous week to rebound from its lowest level since the end of 2013. The Purchase Index managed to increase 1 percent, but on an unadjusted basis, the index was still 16 percent below year-ago levels.

Overall, the refinance share of mortgage activity accounted for 52 percent of total applications, up from 51 percent a week earlier — its worst level in nearly five years. Previous to last week’s gain, the refinance share of mortgage activity had dropped for nine consecutive weeks.

The average interest rate for a 30-year fixed-rate mortgage declined from 4.56 percent to 4.47 percent. Meanwhile, the average rate for a 15-year fixed-rate mortgage fell from 3.62 percent to 3.54 percent. Although mortgage rates are still near historic lows, the housing recovery story will likely draw more skepticism this year as higher prices and stagnant wages cause affordability issues.

Last week, Wells Fargo (NYSE:WFC) reported that in the first quarter, it funded only $36 billion worth of mortgages, down 67 percent from $109 billion a year earlier. The nation’s largest home lender also said mortgage applications plummeted 57 percent year-over-year to $60 billion. JPMorgan (NYSE:JPM), the country’s second-largest home lender, reported similar results.

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