U.S. mortgage applications increased last week-MBA

Wed Jan 19, 2005 09:48 AM ET
By Julie Haviv

NEW YORK, Jan 19 (Reuters) - U.S. consumers came out in droves last week to take advantage of lower interest rates to purchase homes and refinance existing loans, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity increased 16.2 percent to 682.9 in the week ended Jan. 14, after falling 3.0 percent in the MBA's prior week survey.

This is the highest level the index has touched since the week ended Dec. 17, 2004, when the index was at 689.3.

The latest surge in mortgage applications comes after three weeks of declines.

"The past reduction in weekly application volume had been more of a testament to us coming off the refinancing boom highs rather than a reaction to current market conditions," said Bob Walters, chief economist at Quicken Loans, the nation's largest online mortgage lender and one of the 20 largest retail mortgage lenders in the U.S., according to National Mortgage News.

"Last week's surge shows there is still fire in the mortgage market and the housing market remains robust," he said.

Data for December and for 2004 indicates continued strength in the housing market

Housing starts for December rose 10.9 percent to 2.004 million annualized units compared with an upwardly revised 1.807 million annualized units in November. That was the largest one-month gain since an 11.2 percent increase in September 1997.

For 2004, U.S. housing starts rose 5.7 percent to 1.953 million annualized units.

A decline in mortgage rates may have increased demand in the second week of 2005.

Fixed 30-year mortgage rates averaged 5.64 percent last week, excluding fees, down 6 basis points from 5.70 percent the previous week. That is the lowest rate it has been at since the week ended Nov. 19, 2003, when it reached the same level.

"Rates remain at historically low levels, especially for longer term mortgages," Walters said. "Purchases of homes continue to be fueled by low rates and the economic recovery.

The MBA's purchase index, a gauge of loan requests for home purchases, rose 14.0 percent last week to 448.1, more than offsetting the 5.8 percent drop the previous week.

While the latest jump in applications was a positive for the housing market, not everyone expects the level of activity to continue at such a strong pace.

"I expect home purchase applications will slow due to lack of pent up demand and the high dollar price for new and existing homes," said Kevin Kennedy, senior vice-president of capital markets at MortgageIT, a New York residential mortgage company.

The MBA's seasonally adjusted index of refinancing applications climbed 19.1 percent to 2,048.6, adding to the 1.1 percent rise the prior week.

Refinancings made up 48.9 percent of all mortgage applications last week, down from 49.0 percent the week before.

Anticipation of higher borrowing costs due to the current environment of the Federal Reserve raising interest rates may impact refinancing activity going forward, Kennedy said.

Applications for adjustable-rate mortgages, meanwhile, increased to 32.8 percent from 32.7 percent of total applications.

One-year adjustable-rate mortgage rates averaged 4.13 percent, down from 4.16 percent one week earlier.

But other analysts believe that the market will continue to show strong results in 2004.

"The outlook for 2005 is a bright one, with only slight declines from 2004's furious pace expected." said Quicken Loans' Bob Walters.