More Purchase Mortgages Than Refi, First Time in Years
- May 08, 2014
The Mortgage Bankers Association reports the rate of U.S. mortgage applications each week, and it goes up and down according to the vagaries of the economy and interest rates. Still, the MBA reported a milestone in its report on Wednesday, which covers the week ending May 2. Namely, the refinance share of mortgage activity decreased to 49 percent of total applications from 50 percent the previous week, marking it the first time in five years that there were more mortgages applications for home purchases than refinance.
“It is official: we are in a majority purchase market for the first time since 2009,” Mike Fratantoni, MBA chief economist, notes. “A sizeable increase in purchase applications last week likely reflected the impact of somewhat lower mortgage rates as well as continued growth in the job market, as confirmed by Friday’s employment report from the BLS. Despite the strong increase in the purchase market last week, volume continues to run 16 percent behind last year’s pace.”
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.43 percent, the lowest rate since November 2013, according to the MBA, with points decreasing to 0.21 from 0.38 (including the origination fee) for 80 percent LTV loans. The week before, the rate was 4.49 percent.
Consumer credit sees March uptick
Another sign that the economy is gathering steam after the long, hard winter: consumer borrowing picked up in March by the largest amount in about a year, according to the Federal Reserve on Wednesday. Outstanding consumer credit—which is every kind of loan except real estate-related borrowing—was up by $17.5 billion for the month, coming in at a total of $3.14 trillion, a record.
Revolving credit—the kind mostly represented by plastic in one’s wallet or purse—was up $1.6 billion in March, compared with a drop of $3.8 billion in February. Non-revolving credit, namely car loans and student loans and the like, ticked up by $8.7 billion for the month. But non-revolving credit had also risen $8.4 billion in the previous month.
For the first quarter of 2014, consumer credit increased at an annualized rate of 5.75 percent, the Fed notes. Most of that was non-revolving credit, especially student loans, which have been ballooning in recent years. As of the end of 1Q 2014, there was about $1.25 trillion in outstanding student loan debt; at the end of 2009, there was only $831.6 billion.
Yellen optimistic about ’14
Federal Reserve Chair Janet Yellen, testifying before Congress on Wednesday, struck an optimistic note about the U.S. economy, though noted a bit of concern about the housing market. “Looking ahead, I expect that economic activity will expand at a somewhat faster pace this year than it did last year, that the unemployment rate will continue to decline gradually, and that inflation will begin to move up toward 2 percent,” the central banker says.
She added that a faster rate of economic growth this year should be supported by reduced restraint from changes in fiscal policy, and gains in household net worth from increases in home prices and equity values. Also, the economy’s going to benefit from “a firming in foreign economic growth, and further improvements in household and business confidence as the economy continues to strengthen.”
Wall Street was mostly optimistic on Wednesday as well, with the Dow Jones Industrial Average gaining 117.52 points, or 0.72 percent, and the S&P 500 advancing 0.56 percent. The tech sector was a bit glum, however, with the Nasdaq down 0.32 percent.