Are Mortgage Applications Up or Are Applicants Hedging Their Bets?
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Mortgage rates declined again during the week ended August
2 according to the Weekly Mortgage Market Survey conducted by Freddie Mac and
the week ended August 3 per the Weekly Mortgage Applications Survey released
by the Mortgage Bankers Association.
Freddie Mac's report indicted that the 30-year fixed-rate mortgage (FRM)
decreased from 6.69 percent with 0.4 point to 6.68 percent with 0.3 point. This
is 5 basis points higher than the 30-year interest rate one year ago.
The 15-year FRM declined 5 basis points to 6.32 percent with 0.3 point. Last
week fees and points averaged 0.4. The rate is also 5 basis points higher than
the same week in 2006.
The five-year Treasury-indexed hybrid adjustable-rate mortgage (ARM) averaged
6.29 percent this week, down from last week when it averaged 6.30 percent. Fees
and points increased from 0.4 to 0.5. A year ago, the 5-year ARM averaged 6.27
percent.
One-year Treasury-indexed ARMs carried an average contract interest rate of
5.59 percent with 0.5 point. Last week it averaged 5.69 percent also with 0.5
point. At this time last year, the 1-year ARM averaged 5.69 percent.
Frank Nothaft, Freddie Mac vice president and chief economist
speculated that "Market investors seeking safety from the subprime fallout
bought Treasury securities, pushing bond yields down and allowing mortgage rates
to drift a bit lower. Sales of new and existing homes fell in June, and prices
continue to weaken, especially in the markets that had recorded the strongest
gains over the past few years. There are early signs, however, that the market
is stabilizing. As construction spending levels off, the drag on GDP growth
will continue to diminish. Meanwhile, the 5 percent rise in pending home sales
in June suggests that sales in July and August may reverse last month's decline."
Perhaps Nothaft is reserving any comment on the brutal fallout in the subprime
and alt-A markets, particularly the sudden demise of American Home Mortgage,
for the Freddie Mac August forecast due out later on Wednesday. There certainly
needs to be something said beyond the rather innocuous remark about investors
seeking safety. In fact, it would be nice to know that the two GSE's which
control so much of the residential purchasing in this country are doing some
contingency planning in the midst of the current meltdown.
Meanwhile, some interesting figures have been released by the Mortgage Bankers
Association which has announced that mortgage application activity increased
8.1 percent on a seasonally adjusted basis from the previous week and 7.7 percent
when unadjusted. The activity is 18.0 percent higher than one year ago.
Our first reaction on hearing about this relatively steep increase in applications
was to wonder how many of the applications were approved, but Alex Baron, a
housing analyst for the Agency Trading Group, speculated in a CNBC interview
with Erin Burnett that this increase in applications is illusory because potential
borrowers are filing multiple applications in the hope of finding
a willing lender in the current credit crunched market.
Applications to refinance were also up, representing 39.9 percent of total applications
activity compared to 39.4 the previous week. Applications for ARMS increased
slightly to 22.5 percent from 22.3 the previous week.
MBA's survey of rates also noted average decreases; the 30-year FRM averaged
6.41 percent with 1.62 points including the origination fee. Last week the 30-year
averaged 6.50 with 1.66 points.
15-year fixed-rate mortgages decreased to 6.16 from 6.20 percent, with points
decreasing to 1.18 from 1.30 while the average contract interest rate for one-year
ARMs decreased to 5.69 from 5.73 percent, with points decreasing to 1.09 from
1.12. All rate figures are for 80 percent loan to value originations.
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