Increase in Purchase Mortgage Applications May Be Temporary
Mortgage applications increased last week for both refinancing and for purchase. The MBA (Mortgage Bankers Association) reported today that the application activity amounted to a “flurry” that might have been prompted by a tightening of FHA lending standards that became effective Monday. According to Jay Brinkman, chief economist at the MBA, quoted in RealtorMag:
“This is the second straight weekly increase in purchase applications and the highest Purchase Index level since the expiration of the home buyer tax credit program. One possible driver of last week’s big increase in FHA applications was a desire by borrowers to get applications in before new FHA requirements took effect Oct. 4, which included higher credit score and down payment requirements.”
Purchase applications were up for both FHA applications (+17.2%) and conventional mortgages (+3.6%) over the previous week. These levels were last seen in the height of the spring tax credit window in May. However, applications are down 34.7% from a year ago. Thus the increase in purchase mortgage applications does not appear to indicate a return to the good old days of 2009. Of course, at the time, September 2009 was generally considered to be a disaster for the housing market, so the good old days view from 2010 is influenced by the new perspective of historic lows in demand for housing.
If the opinion expressed above that the week over week increase is substantially effected by borrowers trying trying to beat the FHA requirements change, mortgage applications should adjust downward again in the next couple of weeks. If so, it will be occurring in the face of record low (at least for the last 45 years) interest rates for mortgages. From RealtorMag, mortgage rates have moved to new lows:
30-year fixed-rate mortgages decreased to 4.25 percent from 4.38 percent. 15-year fixed-rate mortgages decreased to 3.73 percent from 3.77 percent. 1-year ARMs increased to 7.11 percent from 7.04 percent.
As the Treasury yield curve continues to flatten with declining long term interest rates, mortgages may become even more attractive in the coming weeks. Could 30-year rates drop below 4% and 15-year below 3.5%? How about 3.5% and 3.0%? Just how long the recovery remains anemic (or worse) and employment remains at low levels will determine whether these once unheard of rates will be available.