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Homebuyers jumped back into the market after Labor Day, filing applications for mortgages at a far faster pace than in previous weeks.
Total mortgage application volume rose 4.2 percent on a seasonally adjusted basis last week, according to the Mortgage Bankers Association. The results were adjusted to account for the Labor Day holiday.
Unlike during much of the summer, application volume last week was fueled more by buyers than refinancers. Mortgage applications to purchase a home jumped 9 percent from the previous week. Purchase volume is down nearly 19 percent in the past four weeks, but August is not usually a strong month for homebuying. The jump last week may signal a stronger fall market ahead. Purchase volume is still just 8 percent higher than the same week a year ago, down from double digit annual increases early this year.
"The purchase market remains supported by an improving U.S. labor market. Newly released data from the U.S. Census this week indicate that the median income increased by 5.2 percent last year, the highest rate of increase since 2007. Other recent but less comprehensive measures show wage growth continuing to strengthen in 2016," said Lynn Fisher, MBA's vice president of research and economics.
A small drop in mortgage interest rates at the beginning of last week may have been behind the 2 percent weekly gain in applications to refinance. Refinance volume has been strong all summer, up nearly 43 percent last week from a year ago, with rates sitting near all-time lows.
The average contract interest rate on the popular 30-year fixed conforming loan ($417,000 or less) decreased to 3.67 percent from 3.68 percent, with points decreasing to 0.36 from 0.37 (including the origination fee) for 80 percent loan-to-value ratio loans.
The strength in refinance volume, however, may be about to change. Rates moved higher at the end of last week and continued to do so this week, as investors dumped out of the bond market, pushing yields higher. Mortgage rates loosely follow the yield on the U.S. 10-year Treasury. The 30-year fixed interest rate moved an eighth of a point higher by Monday.
"It continues to make most sense to anticipate further weakness until it can be ruled out. That means favoring locking vs floating until and unless we see a big bounce toward lower rates,"Matthew Graham, chief operating officer of Mortgage News Daily, wroteTuesday.