Mortgage Applications Hit Record High
By Dan Wilchins
NEW YORK (Reuters) - U.S. home buyers applied for mortgage loans in record numbers last week in what experts said may be a sign of rising consumer confidence.
``These numbers mean that there's a reserve of strength in the economy that people underestimate,'' said Doug Duncan, chief economist at the Mortgage Bankers Association of America.
Strong purchasing activity is a sign of consumers' confidence in their employment situations. A potential home buyer is less likely to take on a major financial responsibility if he or she fears being laid off.
Duncan said the employment situation is not as gloomy as it appears, and the economy still has some vitality, even if certain sectors have been hit hard.
Unemployment is nearing 6 percent, but that level is relatively low for a recession, Duncan said, noting that the economy added about 46 million jobs between the peak of unemployment toward the end of 1982 and the trough in unemployment toward the end of 2000.
The MBA said its seasonably adjusted purchase index for the week ending Dec. 21 climbed to 373.5, the highest level since the MBA began its weekly mortgage loan application survey in January 1990. The previous record level of 350.9 was set in the week ending Nov. 30.
Last week the index climbed 16.5 percent from the prior week, and was 15.2 percent above its level four weeks ago.
The housing sector is often one of the first to rebound in a recession. In the late stages of a recession, interest rates typically fall and housing price growth slows, increasing affordability, said Gregory Miller, chief economist at SunTrust Banks, Inc. in Atlanta, Georgia.
This month is likely the first month of the economic recovery, Miller said.
Purchase activity will likely slow as interest rates edge up over the next 18 months, but home buying will not fall off a cliff, said Pierre Ellis, senior economist at Decision Economics, Inc. in New York.
OTHER FACTORS CONTRIBUTE TO HIGH PURCHASE INDEX LEVEL
Other factors were also at play in rising purchase activity, including unseasonably warm weather in December and mortgage rates that are still reasonably low by historical standards, said Duncan.
In addition, changes in purchasing activity in actual numbers in the winter are magnified when the number is seasonably adjusted, Duncan said.
Seasonal adjustment is a statistical technique designed to make data points from an entire year comparable with one another.
Home sales are typically slow in the winter compared with the rest of the year, so the actual number of applications is typically multiplied by a relatively large adjustment number to correct for seasonal slowness.
Ignoring seasonal adjustments, purchasing activity rose 15.2 percent last week vs. the previous week, and 44.8 percent vs. four weeks ago.
REFINANCING ACTIVITY TRAILS OFF
Refinancing activity declined 20.5 percent last week from the previous week, with the MBA refinancing index reaching 1564.4, its lowest level since the week ending July 13, when the index stood at 1387.4.
As mortgage rates have risen from their three-year lows, homeowners have had less incentive to refinance. Although the 30-year fixed rate, ignoring upfront fees, last week fell to 7.13 percent from 7.46 percent, the rate is still well above the 6.4 percent level seen in the week ending Nov. 2 and its lowest in three years, according to the MBA.
Another indication of declining refinancing activity is the drop in the percentage of mortgage loan applications related to refinancing. Refinancing accounted for 49.2 percent of mortgage loan activity last week, down from 52.3 percent in the prior week. When the recent refinancing wave was cresting in the week ended Nov. 9, refinancing accounted for 78.4 percent of mortgage loan applications.
Refinancing activity is more sensitive to changes in interest rates than purchase activity, said Duncan. Purchasers consider other factors, including home prices, which are largely rising, but at a slower rate over the last several months than in the previous five years.
The MBA market index, an index of overall market activity, slid last week to 548.2, a 2.5 percent decline from the previous week.
Each week, the MBA surveys 20 to 35 firms to derive its mortgage applications indexes. The survey covers about 40 percent of all applications processed by mortgage lenders and monitors purchasing, refinancing and overall market activity.
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