Low Rates Fail to Spur Home Purchases

Mortgage applications for home purchases declined in August, despite falling interest rates that continued to set record lows and suggesting that home sales remain weak following July’s sharp declines.

The four-week moving average for home purchase mortgage applications is down 0.2 percent, the Mortgage Bankers Association reported this morning, despite a 1.8 percent gain last week. Compared to the same week one year ago, purchase applications are down 37 percent.

“Despite the slight increase in purchase activity in the past week, the continued low level of purchase applications indicates we are unlikely to see an increase in new home sales reported for August or existing home sales reported for September,” said Michael Fratantoni, MBA vice president of research and economics.

Fratanoni noted that a sharp decline in the MBA purchase index in May foreshadowed the drops in new and existing home sales that were reported for June and July.

Refinances continue to rise

Meanwhile, applications to refinance existing mortgages were up 2.8 percent for the week, to their highest level in 15 months, as homeowners sought to take advantage of record low rates to improve their mortgage terms. Refinancings made up 83 percent of all mortgage applications last week, their highest share since January 2009, and are up 6.3 percent over the past four weeks.

The average interest rate on 30-year mortgages fell to 4.43 percent for the week, a new low for the MBA survey, and down from 4.55 percent the week before. Average fees and discounts increased to 1.34 points, up from 0.89 the previous week, but the effective rate still decreased.

Average rates in 15-year loans also reached a new low for the survey, dropping to 3.88 percent from 3.91 percent the week before. Average fees and discounts fell to 1.45 points, down from 1.64 points previously.

The drop in interest rates was in line with falling Treasury rates, Frantantoni said, owing to weak economic growth and an exceptionally weak housing market.

The MBA weekly survey covers 50 percent of all U.S. residential applications over the previous Monday-Friday. The survey covers applications only, and does not indicate what share of those applications are approved.