Wednesday, April 20, 2011

Reading Rates: MBA Application Survey – April 20 2011

The Mortgage Bankers Association (MBA) publishes the results of a weekly applications survey that covers roughly 50 percent of all residential mortgage originations and tracks the average interest rate for 30 year and 15 year fixed rate mortgages as well as the volume of both purchase and refinance applications.

The purchase application index has been highlighted as a particularly important data series as it very broadly captures the demand side of residential real estate for both new and existing home purchases.

The latest data is showing that the average rate for a 30 year fixed rate mortgage declined 15 basis points to 4.83% since last week while the purchase application volume jumped 10% and the refinance application volume increased 2.7% over the same period.

It's important to note that much of the increase in the overall purchase applications index was due to a notable 17.6% jump in government purchase applications as buyers sought to lock in FHA funding before the scheduled increase in premiums.

While rates have generally trending up for the last five months, it will take some time to determine if this trend will continue or if rates will begin to slide back down to the historically low levels seen in mid-2010.

Keep in mind that the Feds QE2 announcement marked the start of the latest uptrend in rates so that as we near the completion of the Feds latest action (scheduled to end in June) it will be interesting to see if there is a correlated impact on rates.

Further, there has been some chatter of either a premature end to QE2 as the Fed gears up to deal with untethered inflationary forces as well as some speculation to the contrary indicating that the Fed may need to engage in QE3 later this year should the recovery stall similarly to 2010.

Both outcomes could notably impact mortgage rates and in turn, seriously impact the trends in the nation's housing markets.

In any event, the purchase application volume remains near the lowest level seen in well over a decade while refinance activity continues to slow.

The following chart shows the average interest rate for 30 year and 15 year fixed rate mortgages since 2006 as well as the purchase, refinance and composite loan volumes (click for larger dynamic full-screen version).