Drop in rates spurs mortgage refinances
Mortgage applications edged slightly higher last week, as rates fell to their lowest level since November.
Applications rose 3.6 percent on week. However, the move was entirely due to a 7 percent gain in refinances, according to the Mortgage Bankers Association. Meanwhile, applications to purchase a home fell less than one percent on week but dropped 12 percent on year.
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The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) decreased to 4.39 percent from 4.43 percent. Concerns over whether or not the European Central Bank (ECB) might undertake easing measures at its June policy meeting spooked equity markets last week. Lackluster retail sales this week didn't help matters. As investors flee to the relative security of the bond market, yields fall, and interest rates loosely follow those moves.
"We always get some response to any move to periodic highs/lows in rates. Some magic percentage of mortgage holders are always needing or wanting to refinance, and some percentage of that percentage is flexible as to their lock time frame," said Matthew Graham COO of Mortgage News Daily. "Those are the folks that make the applications numbers move the most. In general, they're locking more as rates are hitting periodic lows."
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Refinances, which had comprised around 80 percent of the market when rates hit rock bottom a little over year ago, are now just 50 percent of all loan applications; their volume is down over 70 percent from a year ago. Purchase applications were expected to pick up some of the slack this spring, but demand has not proved as robust as some had hoped.
Mortgage originations dropped by $120 billion to $332 billion in the first quarter, their lowest level since the third quarter of 2011, according to a separate report from the New York Federal Reserve Bank this week. That is likely due in part to higher levels of student loan debt.
"Prior to the most recent recession, home ownership rates were substantially higher for 30-year-olds with a history of student debt than for those without. As in 2012, student loan holders in 2013 were still less likely to invest in houses than non-holders, despite the marked improvements in the aggregate housing market," according to the report.
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Tight credit has been blamed for weak home sales this spring, and federal regulators this week made moves to address those concerns. The number of all-cash home sales is now at record levels. The weakness, however, is not entirely due to credit.
"In many cases there is more demand out there then we are actually observing in terms of sales activity, not because necessarily they can't get access to credit, but at this point because they can't find a home they want to buy," noted Mark Fleming, chief economist at CoreLogic, a real estate data and analytics company.
—By CNBC's Diana Olick. Follow her on Twitter @Diana_Olick.
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