With the holidays behind them – and a slight drop in interest rates – home shoppers got motivated again during the first full week of 2014. According to the Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey, mortgage applications increased 11.9% for the week ending Jan. 10, compared to one week earlier.
The surge in applications may be partly due to the fact that the Consumer Financial Protection Bureau's (CFPB) new ability-to-repay/qualified mortgage rules went into effect on Jan. 10. The new rules require, among other things, that loan payments do not exceed 43% of a borrower's total gross income, in order for the loan to meet the CFPB's ‘qualified mortgage’ definition. Some lenders may have spurred along prospective home buyers who qualified for a mortgage under the old rules, but who might not under the CFPB's new regulations, in the weeks leading up to Jan. 10. In addition, some borrowers may have simply decided to lock in a loan before the rules went into effect, out of fear that they would no longer qualify.
Also, the previous week's results included an adjustment for the New Year's holiday. On an unadjusted basis, application volume increased 61% compared with the previous week.
Refinances increased by about 11%, compared to the previous week, driven mainly by a dip in rates. Some homeowners may be seeking to refinance now, in order to lock in on a lower rate. Although mortgage rates have been rising steadily for the past six months, they remain historically low. With rates forecast to rise above 5% before year's end, the few remaining homeowners who have not yet taken advantage of lower rates may be doing so now.
The refinance share of mortgage activity, however, decreased to 62% of total applications, down slightly from 63% the previous week, and the lowest share observed since the end of September 2013. This is due mainly to the increase in purchase volume.
The seasonally adjusted Purchase Index – used to forecast incoming volume – increased 12% from one week earlier, but is at a level similar to what was observed in mid-November, according to the report. On an unadjusted basis, the Purchase Index increased 66% compared with the previous week and was 10% lower than the same week one year ago.
As mentioned, rates dropped slightly last week, compared to the week prior. The average rate for a 30-year fixed-rate mortgage with conforming loan balance ($417,000 or less) decreased to 4.66%, compared to 4.72% the week prior.
The average rate for a 30-year fixed-rate mortgage with jumbo loan balance (greater than $417,000) decreased to 4.58% from 4.66%.
The average rate for 30-year fixed-rate mortgage backed by the Federal Housing Administration decreased to 4.29% from 4.36%.
The average rate for a 15-year fixed-rate mortgage decreased to 3.72% from 3.77% – while the average rate for a 5/1 adjustable-rate mortgage (ARM) decreased to 3.28% from 3.33%.
The MBA's Weekly Mortgage Applications Survey is based on 75% of all U.S. mortgage application volume.