After weeks of mortgage market weakness, loan applications finally rose last week, led by a surge in applications to purchase a home.
Total mortgage application volume rose 5.3 percent week-to-week on a seasonally-adjusted basis, according to the Mortgage Bankers Association. Refinance applications were up just 2 percent, but purchase applications jumped 9 percent to their highest level since January.
"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 (Bureau of Labor Statistics)," noted Mike Fratantoni, MBA's Chief Economist. "Despite the strong increase in the purchase market last week, volume continues to run 16 percent behind last year's pace."
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Purchase applications also moved into the lead for the first time since 2009, representing 51 percent of total mortgage applications. Refinances had been booming just a year ago, when mortgage rates were at record lows. They accounted for as much as 80 percent of total applications at one time, but since the jump in rates last June, the refinance market has come crashing down.
Last week 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 rates since November 2013, from 4.49 percent the previous week.
While the boost in purchase application volume is a positive sign, the numbers are still way below normal levels. Mortgage origination volumes have been so bad that some are predicting as many as 35 percent of all mortgage firms will either shut down, sell or merge in the next year, according to a recent report by Inside Mortgage Finance. That is potentially 2000 companies.
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Mortgage applications to purchase a home are not picking up much of the refinance slack. While they were up last week, they are still struggling under a slow spring housing market, far slower than expected.
"The challenges of low inventory at the first-time home buyer and move-up buyer levels are compounded by tough credit underwriting and the effects of a sluggish economy, which we believe has slowed demand," said Richard Smith, CEO of Realogy, during the company's quarterly earnings call Monday. Realogy's brands include Coldwell Banker, Century 21 and Sotheby's International.
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.