Interest rates were down significantly during the week ended January 5, but the big news was the surge in mortgage applications that welcomed in the New Year.

The Mortgage Bankers Association (MBA) announced that mortgage loan applications increased 32.2 percent on a seasonally adjusted basis from the pace during the week between Christmas and New Years. Not too surprising; but on an unadjusted basis the rate was up 81.1 percent week-to-week and showed an increase of 8.7 percent compared with the same week one year earlier.

Refinancing was also up, comprising 57.7 percent of total applications compared to 50.9 percent the previous week. The market share of adjustable rate mortgages (ARMs), however, continues to drop and now is at 9.3 percent of all applications compared to 9.8 percent the previous week.



The MBA's Weekly Mortgage Applications Survey also contained some good news for all of those people who are applying for mortgages. The average contract interest rate for 30-year fixed-rate mortgages (FRM) decreased to 5.73 percent from 6.05 percent the previous week, with points, including the origination fee, increasing to 1.10 from 1.05.

The interest rate for 15-year FRM decreased a whopping 40 basis points to 5.21 percent with points increasing to 1.18 from 1.02. The one year ARM, however, did bump up slightly, from 6.0 to 6.04 percent with points decreasing from 1.0 to 0.99.

Likewise all four mortgage products tracked by Freddie Mac's Primary Mortgage Market Survey fell to four week lows during the first week of the New Year.

The 30-year fixed rate mortgage (FRM) averaged 6.07 percent with 0.5 point. The previous week the average was 6.17 percent with 0.5 point. One year ago the 30-year was at 6.18 percent.

The 15-year FRM dropped 9 basis points to 5.68 percent with 0.6 point. Fees and points the previous week were 0.5 percent. During the same week in 2007 the 15-year averaged 5.94 percent

The Five-year Treasury-indexed hybrid ARM averaged 5.78 percent this week, with an average 0.5 point, down from last week when it averaged 5.90 percent, also with 0.5 point. A year ago, the 5-year ARM averaged 6.02 percent.

One-year Treasury-indexed ARMs had a more modest drop in the average rate, going from 5.53 percent with 0.7 point to 5.47 percent with an average 0.5 point. At this time last year, the 1-year ARM averaged 5.42 percent.

Frank Nothaft, Freddie Mac vice president and chief economist commented, "The new year has begun with mixed signals on the direction of the economy and mortgage market. On the downside, the Institute for Supply Management's index of manufacturing activity showed significant contraction in this sector, perhaps a harbinger of a more substantial economic slowdown to begin this year. On the upside, the Conference Board reported that consumer confidence rose in December for the first time in five months, with more positive expectations for the next six months. Furthermore, interest rates have moved lower with average 30-year fixed-rate mortgage rates down about a tenth of a percentage point, the lowest in four weeks.

"The latest home sales data also sent mixed messages on the direction of housing activity towards the end of 2007. The mostly grave home sales reports came with a few light notes. While new home sales fell in November to the slowest pace since April 1995, existing home sales rose by a small margin to an annual pace of 5 million units. Our latest forecast has total home sales continuing to decline in the first quarter of the year before starting a slow recovery; still, sales of new and existing houses are projected to be 5.09 million in 2008, a decline of more than 11 percent from the previous year."