Low Mortgages Rates Continue to Fuel Refinancing

Today the Mortgage Banker’s Association released its newest Mortgage Applications Survey.  It found that total mortgage applications decreased slightly, falling 1.5 percent (on a seasonally-adjusted basis) from the previous week.  Refinance activity declined 3.1 percent from the week prior, while purchase activity increased 6.3 percent from the previous week.

Michael Fratantoni, The MBA’s VP of Research and Economics commented:

“Purchase applications increased last week, reaching the highest level since the end of May.  However, purchase activity remains well below levels seen prior to the expiration of the homebuyer tax credit, and is almost 40 percent below the level recorded one year ago,” said Michael Fratantoni, MBA’s Vice President of Research and Economics.  “On the other hand, refinance volume dropped last week for the first time in six weeks, but the level of applications to refinance remains close to recent highs, as historically low mortgage rates continue to draw borrowers into the market.”

The four week moving average for purchases is up 1.3 percent, while the four week moving average for refinances is up 5 percent.  These figures smooth out the volatility in the one week numbers and show that both indexes have been increasing somewhat over the past month.

These survey demonstrates that while low mortgage rates have prompted many people to refinance their current mortgage (refinances account for about 82 percent of total mortgage applications), they have been ineffective in getting people to move forward with home purchases.  Part of this could be due to the lack of demand for homes following the expiration of the first time homebuyer tax credit, and part of it is due to the state of the economy and the possibility that home prices may continue to fall in the coming months (postponing purchases is a classic feature of deflationary spirals, and we could well see continued deflation of the housing market if not the broader economy).

It seems likely that we will continue to see diminished purchase activity through the remainder of the year (especially as we enter the normally slow holiday season) and into early next year, barring a dramatic change in prevailing economic conditions or the national mood.  We can probably also expect to see refinance activity slowly decrease as the pool of borrowers eligible for refinance dwindles, barring a drastic dip in mortgage rates of a general loosening of credit/easing of underwriting conditions.