Purchase mortgage applications rise on increased consumer confidence

November 26th, 2010

While Americans gave thanks and took a national holiday on Thursday the economy did not stop. Economies never stop. Mixed reports had an impact on mortgage rates this week. Mortgage calculators help with the mathematics of a refinance mortgage or new home loan; economic data help determine the mortgage rates you input or can expect to see when it is time to make your mortgage application. Despite the short workweek here are some economic reports and data that have an effect on mortgage rates.

Home sales stagnant

It has not been a good run for home builders the last several months. Reports of new home sales for October dropped 8.1 percent from September sales, the fourth drop in six months. New home sales in October 2010 were 28.5 percent lower than October 2009. Announcing existing home sales the day before the Commerce Department's new home sales report, the National Association of Realtors reported existing home sales in October were 2.2 percent lower than September.

When home sales drop many lenders will offer price incentives to new home applicants not available to mortgage refinance applicants. Prequalification calculators can assist you in determining your purchasing power if you are ready to take advantage of what appears to be a soft housing market heading into the Christmas holiday season.

Consumer data

Besides reporting on home sale data, the Commerce Department released numbers on consumer income, savings and spending that offer cautious optimism that the primary driver of the American economy is getting healthier. Consumers are responsible for approximately 70 percent of economic activity in the United States and in October consumers increased spending over the prior month by 0.4 percent, following a similar increase of 0.3 percent in September. While the increase is not tremendous, what is tremendous for retailers is back to back months of higher spending.

One reason for the increased spending is the higher earnings in October, 0.5 percent higher than September. With increased spending coinciding with increased earnings it seems consumers are spending not because of government incentives but because they have the earnings and ability to purchase new items. In contrast to pre-recession consumption, Americans are also saving at a higher rate. Even with higher spending individual savings rates increased to 5.7 percent.

Consumer confidence

Increased consumer activity is a key factor in economic growth. The data released this week show that economic activity in the consumer segment of the economy began to increase before the Federal Reserve's new asset purchase program (QE2) implemented to revive economic growth. If American consumers are already beginning to behave (i.e. consume) as if they feel confident about their financial future, the Fed's move may be overkill and create the inflation many critics have predicted.

If this is the case expect higher mortgage rates sooner rather than later. If your refinance calculator results show significant monthly savings at current rates you may want to lock those savings in and not risk losing them to higher rates.


The Labor Department reported initial jobless claims for the week dropped to 407,000 individuals filing. Four hundred thousand is a very large number, but down considerably from earlier this year. Continued initial filings over 400,000 do not translate to a decline in the unemployment rate, however the decreasing number of filings does show a flattening in unemployment and could portend the start of a turnaround.

Treasury auctions

Since the Federal Reserve officially announced QE2, its plan to purchase $640 billion in long term Treasury bonds, interest rates have climbed. Auctions this week for 5-year and 7-year Treasury notes did not reverse this trend. With large auctions on Tuesday and Wednesday to finance government debt as a chance to see how the Fed's presence in the bond market may impact rates investors were not impressed. Both auctions had poor turnout and resulted in lower prices at the auctions; in bonds lower prices mean higher yields. Yields are interest rates, so the rates on 5-year and 7-year Treasury debt increased.

Rates and applications

Freddie Mac's Weekly Primary Mortgage Market Survey reported an infinitesimal increase in the 30-year fixed rate for the week ending Nov. 24, 2010, to 4.40 percent (from 4.39 percent the prior week). Also increasing, but considerably more so, was the purchase mortgage index from the Mortgage Bankers Association Weekly Mortgage Applications Survey. For the week ending Nov. 19, 2010, purchase applications rose 14.4 percent from the prior week.

Higher consumer spending, higher consumer earnings, fewer layoffs, and an increase in purchase mortgage applications seem to show American consumers are feeling a bit more confident. Confidence for consumers translates into positive economic activity. Positive economic activity results in economic growth. Economic growth brings higher interest rates.

Use your mortgage calculators, but do not wait too long to make your application for a new home loan or mortgage refinance.

Posted By :
Dennis C. Smith is co-owner and broker of record for Stratis Financial in southern California. He has over twenty years' experience in the mortgage industry.

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