According to the Mortgage Bankers Association, the seasonally adjusted index of mortgage application activity increased 8.4% in the week ended June 5, the first increase in seven weeks. Refinancing applications gained more than 7% while purchase applications were up almost 10%, although applications for new home mortgages were down 9% in May compared to April. The percentage of applications for refinances was almost as much as for purchases.
At the same time, the yield on the 10-year United States Treasury security, however, has risen to its highest level since September of last year, which helped bring the average 30-year fixed conventional mortgage interest rate to around 4.17%, its highest level since November of last year and up from 4.02% the prior week. Many experts believe the uptick in mortgage activity is the result of both the Memorial Day holiday and a rush to lock in rates before they rise further.
Despite 30-year fixed mortgage interest rates having remained below 5% for over five years, the housing market still has yet to recover from the slowdown that has persisted for quite a number of years. During recent previous periods when the mortgage rates were several percentage points higher than they are now housing had nevertheless often performed well. However, factors such as home price depreciation, increased unemployment (and thus fewer borrowers with good credit) and tighter underwriting standards led to stagnation in the housing market that lower interest rates have not been able to overcome so far.
Even though lower interest rates might not jumpstart the housing market they usually cause an uptick in refinance activity. Refinances have been slow for more than almost two years since the Federal Reserve’s announcement of the end of its bond-buying program caused 30-year fixed rate mortgage interest rates to rise almost a full point in a month. Interest rates had trended downward over this period but the amount of mortgages refinanced in 2014 fell to less than half a trillion dollars from more than twice that amount in 2013 and with the recent rise in rates are on track to be significantly less for 2015.
Some experts believe that consumer confidence and the perceived strength of the economy are more important to the potential purchaser than is the level of the mortgage interest rate. However, all other factors being held constant, a lower rate will translate into a more affordable home for the purchaser.