NEW YORK (Reuters) - U.S. mortgage applications surged to five-year highs as potential borrowers sought to refinance with interest rates down to record lows, an industry group said on Wednesday.
The U.S. housing market is in the worst downturn since the Great Depression as a huge supply of unsold homes, tighter lending standards and record foreclosures push down home prices.
But the latest weekly data from the Mortgage Bankers Association showed potential borrowers were lured by enticing mortgage rates, which have dropped dramatically since the Federal Reserve unveiled a plan to buy up to $500 billion of securities backed by Fannie Mae, Freddie Mac, and Ginnie Mae. The program also entails buying up to $100 billion of debt issued by the government-sponsored enterprises as well as by the Federal Home Loan Banks.
The association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended December 19 soared 48.0 percent to 1,245.4, the highest since the week of July 18, 2003.
The MBA counts all applications in its survey, even those that are ultimately rejected, and it does not account for multiple applications, which have become increasingly common due to significantly tighter lending standards.
Spencer Rascoff, chief operating officer at Zillow.com, a real estate website based in Seattle, said historically low mortgage rates are a boon for the mortgage industry and to many borrowers, but it remains to be seen if they will have a substantial effect on the housing market.
“The good news is that these ‘refis’ could help some homeowners avoid expensive resets on adjustable rate mortgages, and, in turn, prevent some foreclosures,” he said on Monday.
“It is too early to tell if these refis will prevent a large number of foreclosures, and it’s important to note that it can still be difficult to qualify for a loan,” he said.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.04 percent, down 0.14 percentage point from the previous week, the lowest level since the week ended June 13, 2003, when the rate reached 4.99 percent.
Interest rates are sharply below the peak of 6.59 percent reached during the summer and below a month ago when they were at 5.99 percent, according to the trade group.
Interest rates were also well below year-ago levels of 6.10 percent.
The MBA’s seasonally adjusted purchase index rose 10.6 percent to 316.5. The index, however, came in well below its year-ago level of 394.5, a drop of 19.8 percent.
The home purchase market should be much slower than the refinance market as long as unemployment is climbing, the economy is weakening and financial markets are turbulent.
Overall mortgage applications last week were 106.3 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 28.8 percent.
The group’s seasonally adjusted index of refinancing applications jumped 62.6 percent to 6,758.6, the highest reading since the week ended July 4, 2003.
The index was up 252.9 percent from a year ago.
The refinance share of applications increased to 83.2 percent from 76.9 percent the previous week. The adjustable-rate mortgage share of activity decreased to 0.8 percent, down from 1.1 percent the previous week.
Fixed 15-year mortgage rates averaged 4.91 percent, down from 4.93 percent the previous week. Rates on one-year ARMs decreased to 6.36 percent from 6.63 percent.
Editing by Kenneth Barry