NEW YORK, NY - Mortgage applications rose the last week of January, reflecting a jump in demand for home refinancing even as interest rates rose to their highest levels since early December, according to the Mortgage Bankers Assocaition's weekly report. The MBA said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Jan. 30 increased 8.6% to 795.4 after falling 38.8% the previous week.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.28%, up 0.06 percentage point from the previous week. Three weeks earlier, mortgage rates averaged 4.89%, lowest recorded since the MBA survey began in 1990.
John Lonski, chief economist at Moody's Investors Service in New York, says the recent trend higher in mortgage rates is a setback for the U.S. housing market and not what the economy needs now. "In this environment, we cannot afford to have mortgage rates going up, especially because of how critical the stabilization of housing is to any steadying of the overall economy," Lonski said.
Indeed, mortgage rates affect demand. The National Association of Realtors said Tuesday that its Pending Home Sales Index, based on contracts signed in December, surged 6.3% to 87.7, first increase since August. The index, a key gauge of future home sales, tracks signed, not closed, contracts, so it is influenced by changes in mortgage rates.
The MBA's seasonally adjusted home-purchase index fell 11.2% to 261.4 in the latest week. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 9.2%. The Mortgage Bankers seasonally adjusted index of refinancing applications, meanwhile, jumped 15.8% to 3,906.3.
The adjustable-rate mortgage share of activity fell to 2.1% in the latest week, from 2.4% the previous week. Fixed 15-year mortgage rates averaged 5.15%, up from 4.98% the previous week. Rates on one-year ARMs increased to 6.09% from 5.96%.
The housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, and the rest of the world. Economists contend the economy won't emerge from its slump unless the housing market stabilizes.
"Extraordinarily low mortgage yields are absolutely necessary to compensate potential home buyers for home price deflation risk and heightened unemployment risk," Lonski said. "That will probably require more intervention from the government."
The recent rise in mortgage rates can be tied to U.S. Treasury yields, which are linked to mortgage rates. Treasury yields have risen sharply on fears over surging debt to fund a ballooning budget gap and an array of government rescue programs.
Prior to the recent rise, 30-year mortgage rates had mostly been on a downward trend since the Federal Reserve unveiled a plan in late November to buy as much as $500 billion of mortgage securities backed by Fannie Mae ,Freddie Mac and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by Fannie, Freddie and the Federal Home Loan Banks.
Source: USAtoday.com