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Mortgage Applications Hit 8 Year High


January 11 ended the first full business week in a while and mortgage activity responded accordingly.  The Mortgage Bankers Association (MBA) reported a strong rebound when, despite a government shutdown, business returned more or less to normal.

MBA's Market Composite Index, a measure of mortgage loan application volume, increased 13.5 percent on a seasonally adjusted basis from the week ended January 4, reaching its highest level since last February.  On an unadjusted basis, the Index was up 45 percent. Purchase mortgage applications moved higher for the sixth time in the last eight weeks, resuming the upward trajectory that was interrupted by the Christmas holidays. That index was up 9 percent on a seasonally adjusted basis to its highest level since April 2010.  The unadjusted Purchase Index rose 43 percent compared with the previous week and was 11 percent higher than the same week one year ago.

The Refinance Index increased 19 percent from the previous week to its highest level since March 2018. The refinance share of mortgage activity increased to its highest level in a year, 46.8 percent of total applications, from 45.8 percent the previous week. In commenting on the improved activity, Mike Fratantoni, MBA Senior Vice President and Chief Economist said, "Uncertainty regarding the government shutdown, slowing global growth, Brexit, a more patient Fed, and a volatile stock market continued to keep rates from increasing. The spring home-buying season is almost upon us, and if rates stay lower, inventory continues to grow, and the job market maintains its strength, we do expect to see a solid spring market. The 11 percent gain in purchase volume compared to last year is a promising sign." Added Fratantoni, "Borrowers with larger loans tend to be more responsive to a given drop in mortgage rates, and we are seeing that so far in 2019. Furthermore, borrowers with jumbo loans are also more apt to take adjustable-rate mortgages as opposed to fixed-rate loans. Thus, it is not surprising to see the ARM share at its highest level since 2014. These borrowers may also feel more confident taking an adjustable-rate mortgage given the expectation of a more patient Fed."

The average size of loans overall increased by slightly less than $10,000 to $328,100.  Purchase loans ticked up from $300,300 to $306,100, and refinance loans averaged $353,100, a survey high. Applications for FHA-backed mortgages accounted for 10.9 percent of the total, up from 10.3 percent the previous week and the VA share decreased to 10.4 percent from 11.6 percent. Applications for USDA loans declined from 0.6 percent to 0.5 percent.

Rates were mixed. The average contract interest rate for 30-year fixed-rate mortgages (FRM) with origination balances at or under the new conforming loan limit of $484,350 was unchanged at 4.74 percent.  Points decreased to 0.45 from 0.47 and the effective rate declined.   The average contract interest rate for 30-year jumbo FRM, loans with balances greater than the conforming limit, ticked up 1 basis point to 4.53 percent.  Points rose to 0.31 from 0.28 and the effective rate moved higher.   

FHA-backed 30-year FRM had an average contract rate of 4.76 percent compared to 4.70 percent the prior week.  Points increased to 0.52 from 0.47 and the effective rate also increased.

Fifteen-year FRM had an average rate of 4.13 percent, its lowest since April, down from 4.16 percent.  Points increased to 0.45 from 0.35, leaving the effective rate unchanged.

The average contract interest rate for 5/1 adjustable rate mortgages (ARMs) increased to 4.08 percent from 4.05 percent, with points unchanged at 0.32. The effective rate increased from last week.  The adjustable-rate mortgage (ARM) share of activity increased to its highest level since October 2014, 9.2 percent of total applications compared to 8.4 percent the previous week.

MBA's Weekly Mortgage Applications Survey been conducted since 1990 and covers over 75 percent of all U.S. retail residential applications Respondents include mortgage bankers, commercial banks and thrifts.  Base period and value for all indexes is March 16, 1990=100 and interest rate information is based on loans with an 80 percent loan-to-value ratio and points that include the origination fee.



After falling an aggregate of 12 points in November and December the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) appears to have stabilized.  The HMI, a measure of home builders' confidence in the market for newly constructed homes, gained 2 points in January, rising to 58.  This one 1-point higher than analysts polled by Econoday had predicted.

"The gradual decline in mortgage rates in recent weeks helped to sustain builder sentiment," said NAHB Chairman Randy Noel.  "Low unemployment, solid job growth and favorable demographics should support housing demand in the coming months."

The HMI is derived from a monthly survey that NAHB has been conducting for 30 years among its builders who specialize in new residential construction.  The survey asks builders for their perceptions of current single-family home sales and their expectations for the next six months as "good," "fair" or "poor."  Builders are also asked to rate traffic of prospective buyers as "high to very high," "average" or "low to very low." Scores for each component are then used to calculate a seasonally adjusted index where any number over 50 indicates that more builders view conditions as good than poor.

The component measuring current sales conditions rose 2 points to 63, while builder expectations for the next six months increased 3 points to 64.  The index charting buyer traffic, which consistently lags the others edged up one point to 44.

"Builders need to continue to manage rising construction costs to keep home prices affordable, particularly for young buyers at the entry-level of the market," said NAHB Chief Economist Robert Dietz. "Lower interest rates that peaked around 5 percent in mid-November and have since fallen to just below 4.5 percent will help the housing market continue to grow at a modest clip as we enter the new year."

Regional results are presented as three-month moving averages.  The Northeast's moving average fell 5 points to 45; the Midwest and South both declined by 3 points to 52 and 62, respectively; and the West registered a 1-point drop to 67.

The December report on residential construction (construction permits, housing starts, and unit completions) will not be issued tomorrow because of the partial government shutdown.  NAHB estimates that the data would show that single-family starts ended the year totaling 876,000 units, which would mark a 3 percent gain over the 2017 total of 848,900. However, the slowdown in sales during the fourth quarter of 2018 has left new home inventories elevated in some markets.

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