Despite a slight decline in interest rates, mortgage applications and refinancing activity are still struggling to gain momentum as home prices rise across the nation. In the latest update from the Mortgage Bankers Association, for the week ended February 7, applications for home loans fell 2 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, mortgage applications edged only 0.2 percent higher from the prior week.
There have only been a handful of increases over the past nine months as the housing market is starting to return to a more sustainable pace. The Refinance Index also edged lower, while the Purchase Index dropped 5 percent from the previous week. The unadjusted Purchase Index was 13 percent lower than the same week one year ago.
Overall, the refinance share of mortgage activity accounted for 62 percent of total applications, unchanged from a week earlier. Interest rates rebounded higher in the final months of 2013 but have since moved lower. The average interest rate for a 30-year fixed-rate mortgage decreased from 4.47 percent to 4.45 percent, which is the lowest rate since November. Meanwhile, the average rate for a 15-year fixed-rate mortgage fell from 3.53 percent to 3.49 percent.
Home affordability is a lingering issue with the housing market. The national median existing single-family home was $196,900 in the fourth quarter, up 10.1 percent from $178,900 from a year earlier, according to the National Association of Realtors. In fact, 73 percent of measured markets showed gains, while 26 percent posted double-digit increases.
“The vast majority of homeowners have seen significant gains in equity over the past two years, which is helping the economy through increased consumer spending,” explained NAR Chief Economist Lawrence Yun, in a press release. “At the same time, home prices have been rising faster than incomes, while mortgage interest rates are above the record lows of a year ago. This is beginning to hamper housing affordability.”
He continued with, “New home construction activity needs to increase significantly in the fast appreciating markets to help relieve upward price pressure. In 2013, housing starts totaled 924,000, well below the historic average of 1.5 million units that typically are needed. Added housing supply will help moderate price growth this year, and should help to stem erosion in affordability, but mortgage interest rates are projected to rise above 5 percent by the end of the year.”
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