AP

Despite the current concern over increased foreclosures and mortgage delinquencies, it seems like Americans are doing what they always do: responding to a great deal.  "The substantial decline in mortgage rates over the past six months, greater than 80 basis points in total, has led to a significant increase in refinance activity. Additionally, we are seeing a steady increase in purchase applications," said Mike Fratantoni, Senior Economist at the Mortgage Bankers Association.

The Mortgage Bankers Association (MBA) today released its Weekly Mortgage Applications Survey for the week ending December 8. The Market Composite Index, a measure of mortgage loan application volume, was 721.2, an increase of 11.4 percent on a seasonally adjusted basis from 647.6 one week earlier. On an unadjusted basis, the Index increased 10.2 percent compared with the previous week and was up 22.2 percent compared with the same week one year earlier. The Market Index is at its highest level since October 2005.

In other good news, the four week moving average for the seasonally adjusted Market Index is up 2.9 percent to 647.9 from 629.4. The four week moving average is up 3.1 percent to 424.6 from 411.9 for the Purchase Index, while this average is up 3.7 percent to 1994.8 from 1924.2 for the Refinance Index.

And people are still going for the adjustable rate mortgages.  The ARM share of activity increased to 24.9 from 23.9 percent of total applications from the previous week. With the average 30 year fixed at 6.02%, up a tick from 5.98% and the 15 year at 5.75, it's no wonder we're seeing increased activity.  And once again it begs the question of a bottom.  Funny, at a speech at the National Press Club earlier this week, a reporter asked the US Treasury Secretary, Henry M. Paulson, if housing had hit bottom, he all but girl-giggled and said he "refused to answer that question." 

But it's worth looking at as we head into the new year and toward the spring buying/selling season, traditionally the most active of the year.  Prices have come down significantly across the country, and especially in some of the hotter "boom" markets, and that's getting buyers off the fence; the caveat is that it's only getting them off the fence for a good deal.  Realtor after realtor is telling me that while two years ago buyers just wanted to get the house, now they have to get the deal.  The houses are sitting longer, there are about 50% more to choose from today than there was a year ago today, and that still has buyers in the catbird seat.

We did see existing home sales tick up a half a percent last month, and that could signal a turnaround, but remember, just as it was in the slide, the recovery will likely be slow and measured...and heavily dependent on interest rates. Yesterday the Federal Reserve held interest rates steady, but changed some wording regarding housing:

"Economic growth has slowed over the course of the year, partly reflecting a substantial cooling of the housing market."

While the FOMC is still biased toward worrying about inflation, some were salivating over this particular phrase.  If mortgage rates, which remember, are historically low right now, hold steady, the new year could bring some new life to the housing market.

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