Purchase Applications on the Rise as Mortgage Activity Falls

Purchase applications have risen to their highest level this year. Despite that, mortgage applications fell 2%. Although the purchase numbers are encouraging, they still are low by historical …

Purchase applications have risen to their highest level this year. Despite that, mortgage applications fell 2%. Although the purchase numbers are encouraging, they still are low by historical standards. Learn more about this in the full article from The Street.

Mortgage applications fell 2% last week as mortgage rates edged slightly higher, though purchase applications rose to the highest level of the year.

The volume of mortgage loan applications fell 2% on a seasonally adjusted basis in the week ending April 1, the Mortgage Bankers Association said early Wednesday.

Refinancing application volume fell 6.2% from the previous week. Home-purchase loan applications jumped 6.7% week-over-week to its highest level of the year. The government purchase index increased 10.3% to its highest level since May 7, 2010. On an unadjusted basis, the MBA’s purchase index remained 16.8% lower than in the year-earlier week.

"Purchase application volume increased last week reaching the highest level of the year, but remains relatively low by historical standards, at levels last seen in 1997," said Michael Fratantoni, MBA’s Vice President of Research and Economics. "The increase last week was due to a sharp increase in applications for government loans. Borrowers were likely motivated to apply before a scheduled increase in FHA insurance premiums that became effective last Friday."

A total of 61.2% of all loan applications last week were for refinancing existing mortgages, down from 64.3% in the prior week.

The average rate on a 30-year fixed mortgage edged higher to 4.93%, from 4.92% in the prior week, though it remained below the psychological benchmark of 5%.

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"Rates were flat last week, but refinance activity fell, as the pool of borrowers who have both the incentive and the ability to qualify for a refinance continues to shrink," Fratantoni added.

Data in recent weeks has shown the housing market continues to lag the overall economic recovery.

Home prices across the U.S. fell 3.1% in January after falling 2.43% in December, not quite as steep a decline as expected but still an indication that there has been no improvement in home prices.

Even so, pending home sales jumped 2.1% in February, though the index measures the number of contracts signed — not closed — to buy previously owned homes.

Existing-home sales dropped 9.6% in February to a far worse-than-expected seasonally adjusted annual rate of 4.88 million units.

February’s rate of home resales remained 24.8% below the cyclical peak of 6.49 million units in Nov. 2009, which was the initial deadline for the first-time homebuyer tax credit, and 2.8% below the home resale rate in February of 2010.

"Housing affordability conditions have been at record levels and the economy has been improving, but home sales are being constrained by the twin problems of unnecessarily tight credit, and a measurable level of contract cancellations from some appraisals not supporting prices negotiated between buyers and sellers," said Lawrence Yun, NAR’s chief economist.

"This tug and pull is causing a gradual but uneven recovery," he added.

Still, the homebuilder sector remains well off its late-spring peak last year when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

The SPDR S&P Homebuilders (XHB), an exchange-traded fund that tracks the homebuilder sector, remains around 60% off its peak of $46.08 in early 2006. The iShares Dow Jones US Home Construction (ITB) ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

Among individual builders, KB Home (KBH) posted a much wider-than-expected quarterly loss on Tuesday, leading its shares sharply lower though the stock was 0.5% higher in premarket trading Wednesday.

Lennar (LEN), which posted a surprise quarterly profit last week, gained 1.2% ahead of the opening bell.

Hovnanian Enterprises(HOV) was also higher, gaining 2.1% in premarket trading. Toll Brothers (TOL), D.R. Horton (DHI) and PulteGroup (PHM) were flat ahead of the opening bell.

This article was republished with permission from The Street.


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