U.S. mortgage applications up despite jump in rates

NEW YORK (Reuters) – U.S. mortgage applications rose last week even as interest rates jumped to their highest levels since mid-March, data from an industry group showed on Wednesday.

Demand for home purchase loans, an indicator of home sales, far outweighed that for refinancing. The increase may help gauge how the hard-hit U.S. housing market is faring this spring, the peak home buying season.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended May 1 increased 2.0 percent to 979.7.

Jason Braford, ZipRealty district director in Las Vegas, said despite the rise in rates last week, low interest rates on mortgages have made a significant impact on buying activity.

"First-time buyers and investors are finding record-low mortgage rates and home prices at levels last seen in the late 1990s incredibly attractive - with transactions increasing 70 percent year-over-year in Las Vegas," he said on Tuesday.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.79 percent, up 0.17 percentage point from the previous week when it nearly matched the all-time low of 4.61 percent set in the week ended March 27. The survey has been conducted weekly since 1990.

It was the highest since 4.89 percent in the week ended March 13 though well below year-ago levels of 5.91 percent.

The U.S. housing market is in the worst downturn since the Great Depression and its impact has rippled through the recession-hit economy, as well as the rest of the world.

Braford said buyers who are looking to trade up or relocate are finding it difficult to do so due to current national economic conditions.

"These buyers are often finding it takes longer to sell their original home before they can trade-up to another property or relocate," he said.

"However, the opposite is true for first-time buyers, as this group is enjoying the perfect real estate storm of lower prices, an $8,000 tax credit and historically low interest rates," he said.

Low mortgage rates should continue to spur demand for home refinancing loans. Lower monthly payments provide a bit of relief to strapped consumers amid rising unemployment and a shrinking economy.

After three consecutive weeks of declines, low rates may have played a role in the rise in demand for loans to purchase homes last week.

The MBA’s seasonally adjusted purchase index rose 5.0 percent to 264.3. The index, however, came in well below its year-ago level of 381.3.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 6.0 percent.

WEEKLY REFINANCING ACTIVITY RISES

Bob Walters, chief economist at Quicken Loans, an online mortgage lender in Livonia, Michigan, said low interest rates on mortgages and other factors are playing a pivotal role.

"Low rates, combined with government-sponsored refinance plans, are driving mortgage activity," he said.

"As we continue to see positive data, it is starting to look like a bottom may be forming in the housing market," he said.

The Mortgage Bankers’ seasonally adjusted index of refinancing applications increased 1.2 percent to 5,169.3.

The refinance share of applications decreased to 74.4 percent from 75.3 percent the previous week. The adjustable-rate mortgage share of activity was unchanged at 2.1 percent.

Fixed 15-year mortgage rates averaged 4.57 percent, up from 4.45 percent the previous week. Rates on one-year ARMs increased to 6.36 percent from 6.23 percent.

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