This Day On The Street
Continue to site right-arrow
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

Why Mortgage Rates and Applications Are Both Up

NEW YORK ( TheStreet) -- Homebuyers got a surprising case of sticker shock this week as mortgage rates rose significantly, adding potentially thousands of dollars to the cost of a home purchase.

Equally surprising: Rising rates didn't stop home hunters from applying for a mortgage or from refinancing their current mortgage.

Here's how it all breaks down.

BankingMyWay's Weekly Mortgage Rate Tracker shows 30-year fixed rate mortgages climbing to 3.73% from 3.52% for the week.

Across the board, rates rose in other categories, including 15-year mortgages (to 3.09% from 2.93%) and five-year adjustable-rate mortgages (to 2.82% from 2.60%).

But it's the 30-year figure that really stands out. While a rate of 3.73% remains historically low, a weekly jump of 200 basis points shows that banks and lenders see momentum in the U.S. economy in general and the housing sector in particular.

With positive headwinds in both categories, mortgage lenders believe they can get away with charging higher rates, as demand for new homes is on the rise and buyers won't be scared off.

Typically, interest rates rise in a strengthening economy and fall in a declining one. Higher mortgage rates could suggest higher inflation, which makes the cost of products and services higher for consumers.

But consumers aren't seeing higher interest rates in other loan categories, including auto loans, which have remained fairly stable since Jan. 1. That may mean the rise in mortgage rates is an outlier and that homebuyers may want to wait a week or two to dip their toes into the loan market to see if rates go back down again.

That seems, however, to be the exact opposite of what homebuyers and refinancers are doing these days.

According to the Mortgage Bankers Association, U.S. mortgage applications rose by 3.4% for the week ending Feb. 1.

The MBA says the pure Purchase Index (not counting refinancings) is at its highest level since May 2010. The MBA pegs the average 30-year fixed rate mortgage bought by consumers right where has it -- at 3.73%. Meanwhile, refinancing activity rose 4% for the week, a big figure for a seven-day target period.

The mortgage loan figures suggest that consumers know exactly what they're doing. When they see rates rising, as has been the case in the past week or so, homebuyers and refinancers jump off the fence and lock in a good rate before it rises even further.

This "take no chances" approach makes sense at that level -- when interest rates rise, mortgage applications follow, at least for the short term.

Consequently, mortgage loan consumers have an interesting decision to make this week: Is it wiser to grab a 30-year rate around 3.7% now, or wait a week or two and hope rates go back down?

Apparently, homebuyers and refinancers are opting to act now, and not risk rates rising further in the weeks and months ahead. That points to a healthier housing market, just as consumers head into the all-important spring buying season.

Select the service that is right for you!

Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!


DOW 17,804.80 +26.65 0.15%
S&P 500 2,070.65 +9.42 0.46%
NASDAQ 4,765.38 +16.9840 0.36%

Brokerage Partners

Rates from

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs