Mortgage Applications Spike on Refi

Mortgage applications spike last week as more Americans look to refinance their home loans.
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(This mortgage applications article was updated with additional commentary.)

WASHINGTON (

TheStreet

) -- Mortgage applications spiked last week with refinance applications garnering a much bigger slice of the home loan pie.

The Mortgage Bankers Association said early Wednesday that mortgage applications increased by 13% in the week ended Aug. 13 on a seasonally adjusted basis. The jump was led by a 17.1% surge in refinance applications, while loan applications for home purchases actually decreased by 3.4%.

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Refi applications accounted for 81.4% of all applications, the MBA said, up from

a 78.1% share in the prior week

. It was the highest refi share of mortgage applications since January of 2009.

Falling rates in recent months led the sharp pickup in refi applications, said Leif Thomsen, CEO of Walpole, Mass.-based

Mortgage Master

. At Thomsen's mortgage firm, 76% of all applications were for refis in the last 30 days, and it's trending higher.

Even so, Thomsen insisted that loan applications for home purchases have not dried up.

"People think the purchase market is dead, but it's not the case," he told

TheStreet

. Thomsen's firm saw the same volume of purchase loan applications in recent months than earlier in the year, but his refi business is now booming.

"It all depends on interest rates," he said. "If rates go up you will see a decline in refi percentages. If rates stay low or fall further you will see refi levels continuing to hover near 80%."

The average rate for 30-year fixed loan rates increased to 4.6% last week, from the record-low rate of 4.57% in the prior week, the MBA said. The prior week's rate was the lowest on record since the MBA began tracking the data two decades ago. Last week's average 15-year fixed loan rate increased to 3.99%, from 3.95%.

>>4 Top Homebuilder Stocks: Life After the Tax Credit

"The reality is nobody knows

which directions rates will go, and if they think they do they're probably wrong," Thomsen said.

He was surprised home loan rates have been so low given that he does not consider the overall economic situation to be as gloomy as the headlines paint it to be. He also sees great potential for the American people if rates continue at such depressed levels.

"It frees up capital for Mr. and Mrs. Smith to get more money and spend more money," he said. Mortgage holders save money and increase their monthly cash flow by refinancing, and most will spend at least some of that money, he insisted, helping the overall economy.

Thomsen offered the example of a homebuyer with a $350,000 home loan at a 30-year fixed rate of 5.375%, which he or she could have gotten in late 2008. If the homeowner refinanced that loan with a new rate of 4.5%, it would put $2,244 extra cash in his or her pocket each year. It's not an insignificant amount of change. It's clearly good for the mortgage lending business, good for the consumer and, arguably, good for America too.

Homebuilder stocks were mixed early Wednesday immediately following the release of last week's mortgage applications data. The group moved into positive territory, in line with the overall market movement. Industry player

NVR

(NVR) - Get Report

gained 1.8%,

D.R. Horton

(DHI) - Get Report

2.5%, and

PulteGroup

(PHM) - Get Report

2.2%.

M.D.C. Holdings

(MDC) - Get Report

jumped 3.2%. The

SPDR S&P Homebuilders

(XHB) - Get Report

, an exchange-traded fund that tracks the homebuilder sector, rose 2.8%.

Homebuilders have suffered recently, especially following the April 30 expiration of federal tax credits for homebuyers. On Tuesday, the Commerce Department reported

construction of new homes rose a weaker-than-expected 1.7% in July

to a seasonally adjusted rate of 546,000 units, from a downwardly revised rate of 537,000 in June.

Economists had expected the figure to come in at 560,000 units, and view the most recent numbers as further evidence that the housing market is still working to regain its footing after the federal tax credits for homebuyers expired April 30.

The government report also said applications for building permits, a good indication of future building activity, fell 3.1% to a seasonally adjusted annual rate of 565,000, the lowest rate since May and a steeper decline than the expected rate of 580,000 units.

>>New-Home Construction Rises in July

Sentiment among homebuilders fell for the third straight month, according to a report from the National Association of Home Builders on Monday. The NAHB said its index of builder confidence in the market for newly built, single-family homes

fell to a reading of 13 in August

, missing expectations the index would edge higher to 15. A reading above 50 indicates positive builder sentiment, though NAHB's index has not been above that level in more than four years.

NAHB's chief economist David Crowe said the report reflected mounting hesitancy among potential home buyers, as well as "the frustration that builders are feeling regarding the effects that foreclosed property sales are having on the new-homes market, with 87% of respondents reporting that their market has been negatively impacted by foreclosures."

High rates of foreclosures and joblessness combined with a frustratingly tepid economic recovery "

could keep the lid on housing demand for years

, which in turn could keep home inventory levels elevated," noted Vicki Bryan, senior high yield analyst at Gimme Credit. "That signals a protracted period of weak home prices, weak revenue and weak profitability for homebuilders."

Thomsen remained optimistic. He insisted the upside is more significant for builders with rates as low as they are since the rate is the same for people looking to move into new homes as it for refinancing the ones they're already in. Record-low -- and near-record-low -- rates should actually incentivize Americans to go out and buy new homes, he said, since lower rates effectively reduce the overall price of a home without changing the sticker price.

"People care more about what they pay month-to-month than the total sticker price."

VOTE: Do We Need Another Homebuyer Tax Credit?

Would a new round of credits help or hurt the housing market?

-- Reported by Miriam Marcus Reimer from New York.

RELATED STORIES:

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