Last week saw the highest amount of mortgage applications seen in two-and-a-half years, according to the Mortgage Bankers Association (MBA). The large number of applications was due to a spike in refinance activity, thanks to some of the lowest home borrowing costs seen since September 2017.
The MBA’s seasonally adjusted index on loan requests, both to buy a home and to refinance one increased by 26.8 percent to 529.8 in the week ending June 7, which was the highest since September 2016.
Interest rates on 30-year fixed-rate “conforming” mortgages, or loans whose balances are $484,350 or less, decreased to 4.12 percent, which is the lowest level since September 2017. The previous week they averaged 4.23 percent.
Mortgage rates have fallen along with declining bond yields as investors have moved toward low-risk US Treasuries due to signs of a softening employment market and trade concerns between the US and China, as well as other trade partners.
“Despite the less positive outlook, both purchase and refinance applications surged, driven mainly by these lower rates,” Joel Kan, the MBA’s associate vice president of economic and industry forecasting, said in a statement.
MBA’s barometer on refinancing activity jumped 46.5 percent from the prior week to 1,956.5, a level not seen since November 2016. The refinance share of total mortgage applications expanded to 49.8 percent from 42.2 percent the prior week.
This is a far cry from just six months ago, when many mortgage originators were seeing refis slow down to a trickle. It’s a welcome change, even for those who had switched tracks and invested more heavily in purchase business.
Home purchases are viewed as a harbinger of things to come in terms of future housing activity, and MBA’s indications are that home purchases grew by 10 percent to 278.4, the highest level since the week of April 12.
While the surge in activity is a positive sign, the discrepancies between demand and inventory can’t be ignored. Kan said that despite the increase in mortgage applications, home sales in the U.S. have been limited by supply as well as increasing worries about the economy.