Is the Mortgage Market Finally Turning the Corner?
The mortgage market managed to post a second week of gains this month. In the latest update from the Mortgage Bankers Association, for the week ended May 9, applications for home loans increased 3.6 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index gained 3 percent.
Other areas of the mortgage market also showed improvement. The Refinance Index jumped 7 percent from the previous week to its highest level in about a month. The unadjusted Purchase Index also edged slightly higher, but dipped less than 1 percent on a seasonally adjusted basis. As the chart above shows, applications have struggled to gain momentum for a sustained period since the housing bubble collapsed.
Although interest rates remain near historic lows, homebuyers are being selective as home prices continue to climb higher. CoreLogic recently reported that home prices in March jumped 11.1 percent from a year earlier, while the latest S&P/Case-Shiller reading surged 12.9 percent on an annual basis.
Overall, the refinance share of mortgage activity accounted for 50 percent of total applications, up from 49 percent a week earlier — its worst level in about five years. In fact, the refinance share of mortgage activity has dropped for twelve of the past fourteen weeks.
The average interest rate for a thirty-year fixed-rate mortgage dipped to 4.39 percent, the lowest rate since November 2013. Meanwhile, the average rate for a fifteen-year fixed-rate mortgage declined to 3.48 percent from 3.52 percent.
Despite the declines, the housing recovery story will likely draw more skepticism this year as higher prices and stagnant wages continue to weigh on homebuyers. In a recent report, the MBA revealed that the average loan size for purchase applications had reached its highest level in the history of the survey at $280,500.
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