Refinancing drives mortgage applications up: MBA
NEW YORK (Reuters) - Mortgage applications climbed last week, a trade group said on Wednesday, driven by demand for loans to refinance as government interventions helped drive down borrowing costs.
The push to cut expenses by refinancing will intensify after the Federal Reserve aggressively cut short-term interest rates to near zero percent on Tuesday. This sliced the yield on 10-year Treasury notes, a peg for fixed mortgage rates, to its lowest level since 1951.
The Mortgage Bankers Association said its application activity index rose 2.9 percent to a seasonally adjusted 841.4 in the week ended December 12.
Average 30-year fixed mortgage rates fell 0.26 percentage point during the week to 5.18 percent, the lowest level since June 2003, the MBA said.
The rate drop propelled the refinancing application index up 6.5 percent to a seasonally adjusted 4,156.0, overshadowing a 4.5 percent drop in demand for loans to purchase homes.
The trade group also said it revised the levels of the three indexes upward for the previous week ended December 5.
The Fed's rate cut, and its pledge to buy hundreds of billions of dollars of mortgage bonds to help lower loan rates and stimulate housing, should stoke the refinancing engine.
"It doesn't solve the problem for people who owe more than their home is worth, but for the significant majority who are able to refinance, it is quite a boon," said Bob Walters, chief economist at Quicken Loans in Livonia, Michigan.
"It really will be a capacity issue. If people don't get in line quickly, that line will be long," he added.
Though mortgage rates had been hovering at four-year lows, stringent lenders have made getting loans approved more difficult.
Lower rates and a two-year slump in house prices improve affordability. But spiking unemployment and fears of deep recession have curbed appetite for new home purchases.
Demand in many areas has been concentrated in distressed, deeply discounted properties.
New home building and permits to build plunged to record lows in November, tumbling nearly 50 percent from a year earlier the Commerce Department said on Tuesday. The silver lining is that the oversupply of houses that helps depress prices is pared as new building shrinks.
"There are elements in the housing market that are not a disaster," said Gregory Miller, chief economist at SunTrust Banks Inc in Atlanta. "There is still a huge inventory overhang, but it's moving in the right direction."
(Additional reporting by Ellen Freilich)
