The first week of the New Year was a good one - no make that a great one - for mortgage activity with virtually unprecedented increases in mortgage applications both for purchase and refinance.  While the figures were partially affected by the resumption of more normal business activity following the Christmas holidays, the surge in applications was nonetheless remarkable. 

As context, application volume as measured by the Mortgage Bankers Association's (MBA's) Market Composite Index was down 9.1 percent on a seasonally adjusted basis over the two week holiday period ended January 2 was down 9.1 percent including an adjustment to account for the holiday.  The volume was down 37 percent on an unadjusted basis. 

Applications for the week ended January 9 more than offset those losses.  MBA said today that the Index soared 49.1 percent on an adjusted basis and rose an incredible 119 percent on unadjusted compared to the previous week.  The increase in the seasonally adjusted index was the largest weekly gain since November 2008. 

The Refinancing Index rose 66 percent to the highest level since July 2013.  The percentage of refinancing applications increased to 71 percent of total applications compared to 65 percent the previous week. 

Refinance Index vs 30 Yr Fixed

The seasonally adjusted Purchase Index was up 24 percent from the week ended January 2, the highest level it has reached since September 2013 while the unadjusted Purchase Index was up 83 percent from the holiday period and 2 percent compared to the same week in 2013.

Purchase Index vs 30 Yr Fixed

Mike Fratantoni, MBA's Chief Economist noted that while the economy and the job market still appear to be gaining strength, long term interest rates have eased because of problems abroad and tumbling oil prices. 

"Mortgage rates reached their lowest level since May of 2013," Fratantoni said, "and refinance application volume soared, more than doubling on an unadjusted basis, and up 66 percent after adjusting for the fact that the previous week included the New Year's holiday. Conventional refinance volume increased to a greater extent than government refinance volume. Applications for larger refinance loans increased more than 4 times relative to the previous week."  

While interest rates were at nearly two year lows, other factors got credit for the jump in application volume.

"In addition to the drop in rates, and news of improvement in the job market, there was additional positive news for prospective homebuyers with evidence that credit availability has increased somewhat, and with FHA's announcement of a decrease in their mortgage insurance premiums. Purchase application volume increased by almost 24 percent, with stronger growth for conventional applications than for government loans. Purchase application volume was at its highest level since September 2013, increased on a year over year basis in the aggregate, and notably increased across most loan size categories, particularly for the conforming, middle of the market loan segments that had been weak for much of the past year. FHA purchase application volume was up by 17 percent for the week on a seasonally adjusted basis."

Fratantoni continued, "The average conventional refinance application increased to $298,700 from $233,500 the prior week. Although there was a somewhat smaller increase for government refinance volume, VA refinance applications increased by 50 percent. VA loans tend to be larger than FHA and USDA loans, and hence are more responsive to a given rate change."

Overall the share of government-backed mortgage applications was lower with the FHA share of total applications representing 7.5 percent of the total during the week compared to 9.3 percent in the prior period.  The VA share decreased to 9.7 percent from 10.7 percent and applications for USDA loans dipped to 0.8 percent from 0.9 percent.

Contract interest rates for all mortgage products saw substantial reductions with fixed rate numbers returning to levels last seen in May 2013.  Effective rates were also down.  The average contract interest rate for 30-year fixed-rate mortgages (FRM) with conforming loan balances ($417,000 or less) decreased to 3.89 percent, from 4.01 percent, with points decreasing to 0.23 from 0.28   The jumbo 30-year FRM fell 11 basis points to 3.88 percent and points decreased to 0.23 from 0.24.

The average contract interest rate for 30-year fixed-rate mortgages backed by the FHA decreased to 3.71 percent with -.05 point from 3.81 percent with -0.03 point.

Fifteen-year FRM had an average rate of 3.16 percent, down 8 basis points from the previous week.  Points were unchanged at 0.30. 

The average contract interest rate for 5/1 ARMs decreased to 2.94 percent, the lowest level since October 2014, from 3.19 percent, with points decreasing to 0.46 from 0.51 and the effective rate decreased from the previous week.  The adjustable-rate mortgage (ARM) share of activity increased to 5.9 percent of total applications from 4.9 percent.

MBA's Weekly Mortgage Applications Survey has been conducted since 1990 and covers over 75 percent of all U.S. retail residential mortgage applications.  Respondents include mortgage bankers, commercial banks and thrifts. Base period and value for all indexes is March 16, 1990=100 and interest rates are quoted for loans with an 80 percent loan to value ratio.  Points include the origination fee.