Mortgage activity shows signs of strength for housing

March 13th, 2013

The Mortgage Bankers Association (MBA) reported that mortgage rates fell in the first week of March, and a closer look at the numbers reveals even more good news.

Recent mortgage rates

Thirty-year rates for conforming loans dropped by seven basis points in the first week of March, from an average of 3.77 percent to 3.70 percent. 15-year loan rates also dropped by seven basis points, to 2.96 percent.

There were even greater declines in mortgage rates for the less-mainstream loans. The average rate for 30-year jumbo mortgages (loans exceeding $417,500) plunged by 13 basis points in one week, to 3.80 percent. Meanwhile, the average rate for adjustable-rate mortgages fell by 10 basis points in the same week, to 2.55 percent.

Analyzing mortgage activity

The MBA also reported that mortgage application activity increased by 15 percent during the first week of March, with both refinancing and purchase applications experiencing similar jumps. Perhaps it is no surprise that mortgage applications would surge when interest rates fall, but the relatively small drop in rates and the already-low level of rates in recent months suggest that there may be more to the rise in activity than just lower mortgage rates.

After all, savvy home buyers and would-be refinancers who have been tracking the ups and downs of the loan market on their mortgage calculators would have seen similarly attractive opportunities for the past few months. The average drop in rates of seven basis points recently would yield slightly lower monthly payments on a loan calculator, but surely not enough to trigger a 15-percent surge in mortgage demand. So why now?

There may be answers in some of those other loan figures. The particularly steep drop in rates for jumbo mortgages suggests that lenders are feeling more optimistic about the high end of the market. This is consistent with the continued recovery of housing prices and, in turn, that recovery may be creating more opportunities for existing homeowners to refinance.

Perhaps most telling is the fact that adjustable-rate mortgages, as low as their rates are, represented only 4 percent of the application activity reported by the MBA. This indicates that consumers recognize that rates aren't likely to drop much further, which would prompt those who are in a position to get a loan to pull the trigger now.

Posted By :

Richard Barrington has earned the CFA designation and is a 20-year veteran of the financial industry, including having previously served for over a dozen years as a member of the Executive Committee of Manning & Napier Advisors, Inc. Richard has written extensively on investment and personal finance topics.

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