Mortgage Applications Continue to Drop

February 18th, 2010

Mortgage application trends are seen as a leading indicator to home sales. Previous reports showing increases in home sales across the country led to some optimism for a housing market recovery, but recent dips in mortgage application numbers may cast doubt on this recovery.

Rates Steady, but Mortgage Applications Drop

During the week, the contract rate for 30-year fixed-rate mortgages remained flat at 4.94% with only a slight increase in cost (from 1.06 points to 1.09 points). Despite steady interest rates, the Mortgage Bankers Association (MBA) announced on February 17 that all mortgage applications for the previous week dropped 2.1% on a seasonally adjusted basis.

Refinance Applications Still Dominate Market

Home refinance applications for the week were down relative to the first week in February, and mortgage refinances still dominate the mortgage market. Of the total mortgage applications taken across the country, 69.3% of them were for refinance transactions. Despite the many homeowners with negative equity positions, mortgage application numbers show that there are still other homeowners with enough equity to refinance and benefit from the lower mortgage rates.

Purchase Mortgage Applications Down

Total purchase applications were down 4% from the previous week, continuing a recent decline, and were down a significant 18.4% compared to the same week last year. The National Association of Realtors has not yet released figures for existing home purchases in January, but analysts expect a decline from last January. Because of the record-breaking winter weather across the country the last few weeks, whether the decline in purchase applications is a trend or weather-related will not be fully known until the numbers for March come in.

With the overwhelming majority of mortgage refinance applications in the market, many mortgage lenders are offering a better price for a purchase mortgage than for a mortgage refinance. Lender incentives could be up to one-quarter of a point (0.0025% of the loan amount), which translates into $250 for every $100,000 borrowed. If you are in the market for a purchase mortgage, ask your mortgage lender if there is a price advantage for your transaction.

Imminent Market Changes Expected to Raise Mortgage Rates

Current low interest rates should begin to rise after the Federal Reserve ceases its $1.25 trillion mortgage purchase program at the end of March. The IRS income tax credit for eligible first time and move up home buyers expires in April. Lender price incentives for purchase mortgage applications currently in the market may not last once application volumes increase. It appears the window of opportunity for maximizing market benefits appears to be closing. If you are considering a new home purchase in the next few months, get your application started and be ready to lock in your rate and close before these incentives disappear.

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