Mortgage applications increased 1.3 percent from the prior week, according to the weekly report from the Mortgage Bankers Association’s (MBA). The Purchase and Refinance indexes increased 0.1 percent and 0.2 percent respectively. Refinance volume also climbed 1.3%, while the Purchasing index increased by 1.1% during the week ended Friday, mostly as a result of increased government loan activity.
Chart.1 Refis Surge and Mortgages are flat
The purchase index has been relatively flat or stabilizing between levels of 165 and 210 since the July 2009 bottom. Tight lending standards and declining house prices have curtailed growth in purchase volume.
Chart.2 Refi Driven by Low Interest Rate Levels
Conversely, mortgage refinancing has surged by 112%, since early April 2010.
We expect purchase index volumes to remain subdued until house prices begin to improve. However, interest rates are likely to low levels for an extended period due to Federal Reserve’s monetary policy and the Maturity Extension Program and Reinvestment Policy (operation twist). Terefore, we anticipate that refinancing activity may continue on an upward trend.