Mortgage Applications Rise as Rates Fall

WASHINGTON ( TheStreet) -- Mortgage applications rose 4.1% last week as market volatility sent mortgage rates lower and homeowners looked to refinance.

Mortgage loan application volume increased 4.1% on a seasonally adjusted basis for the week ended Aug. 12 from the prior week, the Mortgage Bankers Association said Wednesday.

The refinance index jumped 8% week over week as loan rates fell, but remained 16.3% lower year over year.

The seasonally adjusted purchase index dropped 9.1% from the prior week as potential homebuyers were cautious to make big purchases amid economic uncertainty.

"Unprecedented volatility in the stock market last week amid additional signs that the economy has slowed led to further drops in mortgage rates, with the 15-year rate reaching a new low for the MBA survey," said Mike Fratantoni, MBA's vice president of research and economics. "Purchase application activity fell sharply over the previous week, likely the result of potential homebuyers hesitant to purchase in this highly volatile and uncertain environment."

A total of 78.8% of all loan applications last week were for refinancing existing mortgages, up from 75.6% in the prior week. It was the highest the refinance share has been since November 2010 as existing homeowners looked to take advantage of lower mortgage rates.

The average rate on a 30-year fixed mortgage decreased to 4.32% last week, down from 4.37% in the prior week. The 30-year fixed contract rate has decreased for three straight weeks and is at a new low for this year, the MBA said.

The housing market is still a ways off from any sense of real recovery as potential buyers remain cautious, home inventories remain high and building activity remains sluggish, according to an analyst with the Credit Union National Association.

"Unfortunately none of the data we see suggest that there will be a significant turnaround anytime soon," Mike Schenk, vice president of economics and statistics with CUNA, told TheStreet. "While mortgage interest rates are near all-time lows and housing affordability is near all-time highs, consumers remain cautious, builders remain dejected ... and permit activity suggest very little new construction on the horizon."

Data released Tuesday showed that homebuilders began construction on 1.5% fewer homes in July while applications for building permits fell 3.2%. On Monday, the National Association of Home Builders (NAHB) reported that homebuilder sentiment held steady at a low reading of 15 in August as the usual suspects -- an oversupply of homes, inaccurate appraisal values and tight lending -- kept home purchasers at bay.

"Extreme and prolonged weakness in labor markets are the key underlying feature of housing market weakness" with the true unemployment rate -- including the underemployed and part-time workers looking for full-time work -- near 16%. The "glut of empty homes on the market" -- around 2 million -- plus what is known as the "shadow inventory," or homes kept off the market because owners don't think they will sell in the current environment, adds another 2 million to 2.5 million vacant homes, Schenk estimated.

Market watchers will pay close attention to a new set of data due out on Thursday detailing sales of existing homes in July. Analysts expect existing-home sales to have increased 2.1% last month to a seasonally adjusted annualized rate of 4.87 million from 4.77 million in June. The National Association of Realtors report will be released at 10 a.m. EDT on Thursday.

Stocks in the homebuilder sector were mostly higher Wednesday morning, including the SPDR S&P Homebuilders ( XHB) and iShares Dow Jones US Home Construction ( ITB) exchange-traded funds that tracks the sector. The ETFs remain around 70% and 80%, respectively, off their early 2006 peaks.

Among individual builders, PulteGroup ( PHM) gained 0.6%, Lennar ( LEN), largely considered a leader among the homebuilders, added 0.8%, D.R. Horton ( DHI) rose 0.4% and Toll Brothers ( TOL) edged 0.1% higher. Small-cap builders Beazer Homes ( BZH) and Hovnanian Enterprises ( HOV) were also higher, by 1.1% and 1.6%, respectively.

-- Written by Miriam Marcus Reimer in New York.

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