Mortgage Rates Fall, But So Do Home Purchase Applications

By:
Peter King | May 19, 2010

Mortgage applications for home purchases fell to their lowest level in 13 years last week, as home buying activity dried up following the end of a popular tax credit.

The Mortgage Bankers Association (MBA) reported that home purchase mortgage applications plummeted 27 percent last week, to their lowest level since May 1997. The drop came despite another decline in mortgage interest rates that saw the average rate on 30-year loans fall to 4.83 percent, one of the lowest ever reported by the MBA.
 
The low rates did spur interest from current homeowners, however, as applications to refinance existing mortgages rose 14.5 percent from last week. Mortgage refinances made up over two-thirds of all mortgage applications.
 
"The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season. ," said Michael Fratantoni, MBA's Vice President of Research and Economics.   In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009."
 
Market observers had long expected home purchase activity to fall following the conclusion of the federal government’s homebuyer tax credit, which had an April 30 deadline. Homebuyers had to complete a sales agreement by that date to qualify for either an $8,000 first-time buyer tax credit or $6,500 credit for repeat buyers. Buyers have until June 30 to arrange financing and close the sale.
 
Mortgage purchase applications were down nearly 20 percent over the last month, and 24 percent from the same week one year ago.
 
The current 30-year rate reported by the MBA represents a decline of 13 basis points from the previous week’s average of 4.96 percent. Average points paid, including origination fees, rose to 1.08 from 0.91. Rates on 15-year fixed declined to 4.19 percent, the lowest ever reported in the MBA survey, from 4.32 percent the week before. However, an increase in points paid from 0.81 to 1.36 meant the effective rate was essentially unchanged.
 
Uncertainty over the European economy triggered by the Greek credit crisis is credited with sending investors to the safe haven of U.S. Treasuries, contributing in turn to lower interest rates. A widely expected rise in mortgage interest rates following the removal of Federal Reserve market support at the end of March has yet to materialize.
 
The weekly MBA survey, which is released each Wednesday morning, covers the week concluding with the previous Friday.

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