Low Mortgage Rates Not Enough to Spur Mortgage Applications

October 5, 2011 (Chris Moore)

Last week’s low interest rates failed to motivate potential home buyers and refinancers as mortgage applications for both declined from the previous week according to the Mortgage Bankers Association’s (MBA) Weekly Mortgage Applications Survey for the week ending September 30, 2011.

The Market Composite Index, a measure of mortgage loan application volume, which includes purchase applications and refinance applications, decreased a seasonally adjusted 4.3 percent from the previous week.

On an unadjusted basis, the Index decreased 4.5 percent compared with the previous week. The four week moving average for the seasonally adjusted Market Index is up 2.44 percent.

Data by the MBA for August shows that 50.7 percent of borrowers who refinanced their loans chose a 30-year fixed rate loan, 31.0 percent chose a 15-year fixed rate loan, and 7.1 percent chose an adjustable rate loan.

With home purchase applications, 90.1 percent of the borrowers chose a 30-year fixed rate loan, 7.7 percent chose a 15-year fixed rate loan and 6.6 percent chose an adjustable rate loan.

Purchase Applications:

The seasonally adjusted Purchase Index decreased 0.8 percent from the previous week. The four week moving average is down 0.33 percent for the adjusted Purchase Index.

The unadjusted Purchase Index decreased 1.7 percent compared with the previous week and was 12.1 percent lower than the same week a year ago.

Refinance Activity:

The Refinance Index decreased 5.2 percent from the previous week. The four week moving average is up 3.24 percent.

The refinance share of mortgage activity decreased slightly to 79.1 percent of total applications from 79.7 percent the previous week.

Mortgage Interest Rates:

Average Contract Mortgages Rates
(80% loan-to-value)

Type of
Loan

Interest Rate (%)

Points

Effective Rate

Current

Previous

Current

Previous

30-Year FRM Conforming
($417,500 or less)

4.18

4.24

0.44

0.36

Decreased

30-Year FRM Non-Conforming
($417,501 or more)

4.49

4.53

0.41

0.39

Decreased

15-Year FRM

3.49

3.46

0.45

0.48

Increased

FHA 30-Year

4.05

4.06

0.69

0.42

Increased

5/1 ARM

3.02

2.95

0.41

0.50

Increased

The adjustable-rate mortgage (ARM) share of activity increased to 6.4 percent of total applications from 6.1 percent the previous week.

Mike Fratantoni, MBA’s Vice President of Research and Economics, stated, “ Interest rates continued to fall last week, driven by the latest Federal Reserve actions to invest in longer-term Treasury and mortgage securities, but potential borrowers largely remained on the sidelines, seemingly unimpressed by the lowest (by any measure) mortgage rates since the 1940s.”

“Refinance application volume declined and purchase volume was little changed. Purchase borrowers continue to value the government lending programs that permit lower down payments. The government share of purchase applications decreased slightly to 41.6 percent last week, and while this is down from a recent peak of 50.4 percent in April 2010, it is still well above the pre-2009 survey average of 23.6 percent. Many refinance borrowers are opting to deleverage by moving to a 15-year term, with this product accounting for 27.0 percent of refinance volume last week,” he added.

This week’s results are based on an enhanced sample which captures more than 75% of all retail and consumer direct channel mortgage applications, compared to 50% previously.

Tags: MBA, home purchase applications, mortgage rates, fixed rate mortgage, adjustable rate mortgage, refinance, interest rate

Sources:
Mortgage Bankers Association