Last week's anemic jobs report for May pushed interest rates lower, but the desire for mortgages was already on the rise.
Mortgage application volume jumped 9.3 percent last week from the previous week, according to the Mortgage Bankers Association. The results were seasonally adjusted, including for the Memorial Day holiday. The volume may have been making up for a big drop two weeks ago, or reacting to a slight drop in interest rates.
Applications to refinance a home loan increased 7 percent, seasonally adjusted, from the previous week, and are nearly 14 percent higher than one year ago. Interest rates were higher at this time last year. Mortgage applications to purchase a home did jump 12 percent for the week, but they are down 19 percent in the past four weeks and down 6 percent from the same week one year ago. Given the high demand for housing, purchase applications should be higher, but a lack of affordable homes for sale is likely keeping volume low.
"Given the weak employment report for May, we think it is unlikely that the Fed will raise rates in June," said Mike Fratantoni, chief economist of the MBA. "However, as other economic data are pointing to continued economic growth, we do expect that they will increase rates following their July meeting."
The net share of Americans who say that now is a good time to buy a house fell to 29 percent in May on a monthly survey by mortgage giant Fannie Mae. That's an all-time survey low for the second- straight month and comes despite fewer people saying they are afraid of losing their jobs and more are reporting a higher household income than one year ago.
"Continued home price appreciation has been squeezing housing affordability, driving a two-year downward trend in the share of consumers who think it's a good time to buy a home," said Doug Duncan, senior vice president and chief economist at Fannie Mae. "The current low mortgage rate environment has helped ease this pressure, and fewer than half of consumers expect rates to go up in the next year. While the May increase in income growth perceptions could provide further support to prospective homebuyers as the spring/summer home buying season gains momentum, the effect may be muted by May's discouraging jobs report."
The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 3.83 percent from 3.85 percent, with points decreasing to 0.33 from 0.36 (including the origination fee) for 80 percent loan-to-value ratio loans, according to the MBA.
"When rates have been near these three-year lows, we've only seen them dip lower briefly — and usually not by that much. That means locking is never a bad idea at current levels," wrote Matthew Graham, chief operating officer of Mortgage News Daily. "Even so, risk-takers could also find justification to float based on the hope that European markets continue to pull US interest rates lower as the European Central Bank (ECB) begins a new bond-buying program tomorrow."
For borrowers who choose to float, Graham recommends setting a limit as to how much rates would have to rise before they'd lock to avoid further losses.