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Market Conditions Promote Largest Mortgage Application Increase In Six Years

The housing market has been subjected to harsh fluctuations for the better part of a decade. Post-recession home values were historically high, only to succumb to what became known as the housing bubble. Within a matter of a few short years, home values had stumbled from record highs to nearly record lows. Homeowners once up to their necks in equity were suddenly fraught with uncertainty, as foreclosures quickly swept across the country. Nevertheless, a recovery was inevitable. The expansion of the economy and an improving job sector made it possible for homes to regain their status. Perhaps even more importantly, however, is the encouraging market ahead. Following several mundane years of “recovery,” the housing market appears primed for a big 2015. The biggest indicator that things are going well: mortgage applications are the highest they have been in six years.

2015 is on the precipice of a significant period of recovery. Current conditions should promote economic stability for the foreseeable future. Accordingly, economic growth, in association with low interest rates, should foster an active housing sector. In fact, we are already starting to see the product of such indicators coming together at the right time. According to the Mortgage Bankers Association (MBA), no more than two weeks into 2015, mortgage applications increased nearly 50 percent from the previous week. The move represents the largest week-to-week increase in six years.

The recent surge in mortgage applications is likely due, in large part, to refinancing options. More people are trying to refinance before rates increase. Some believe the increase is only months away – perhaps the end of the first quarter. Regardless, applications to refinance increased 66 percent (seasonally adjusted). The jump was the largest since the second quarter of 2013. Even more people are expected to refinance before the window of opportunity closes, as rates are not likely to be this low again for some time.

Even applications to purchase a home have increased in the face of an encouraging economic outlook. Subsequently, mortgage loan applications increased 24 percent (seasonally adjusted) from the previous week at the beginning of January. With the jump, mortgage application numbers are 2 percent higher than they were this time last year. That is the largest annual gain mortgagees of this nature have seen in over a year. Again, conditions favor the housing market at the moment. A recent move made by the Federal housing Administration (FHA) allows for borrowers to put three percent down. The lower down payment rate could be responsible for the recent increase.

According to Michael Fratantoni, a chief economist for the MBA, “purchase application volume was at its highest level since September 2013…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.”

Mortgage rates, while expected to rise during much of last year, have remained relatively low. Some experts predicted rates on traditional 30-year mortgages to surpass 5 percent by the end of 2014, but the rate on fixed-rate mortgages has topped out 3.89 percent. That is the lowest rate we have seen since the second quarter of 2013.

“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,” added Fratantoni.

In a rather surprising move, the FHA recently announced that they intend to lower mortgage insurance premiums. As of January 26th, the FHA will drop mortgage insurance premiums to 3.5 percent. According to President Barack Obama, the move could serve as the catalyst for as many as 140,000 new homeowners to enter the market. Millennials, in particular, could benefit from the drop and should find owning a home to be more manageable.

“We are optimistic that more affordable FHA loans will have a positive impact on first-time buyers who have been entering the market at a lower-than-normal rate,” NAR President Chris Polychron said in a statement. “NAR is a strong supporter of the FHA and its vital role in the mortgage marketplace for home buyers. We will continue our work with the administration to help make the dream of home ownership a reality for millions more Americans.”

The recent announcement is expected to increase applications for FHA loans. Moreover, borrowers already working with the FHA may want to refinance under the new rules.

“It’s a really big deal. Current FHA borrowers would need to refinance, but in most cases, it will be well worth the trouble. The monthly savings from a 0.5 basis point drop in mortgage insurance is substantial,” said Matthew Graham of Mortgage News Daily.

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