Mortgage Loan Applications Boom As Interest Rates Continue Their Decline

June 27, 2002

Housing Continues to be the Bright Spot in the U.S. Economy

WASHINGTON, D.C. - As interest rates continued their downward trend, dropping to 6.45 percent for 30 year fixed-rate mortgages and 4.17 percent for 1-year adjustable-rate mortgages, loan applications for purchases and refinancings swelled considerably during the week ended June 21, according to the Weekly Application Survey results compiled by the Mortgage Bankers Association of America (MBA).

"American consumers are flocking to purchase homes or refinance existing mortgages thanks, in large part, to some of the lowest interest rates we have seen in over 30 years," said Doug Duncan, MBA senior vice president and chief economist. "Without a doubt, the housing market is very strong and is helping to push the U.S. economy toward recovery. Consumers and mortgage markets are receiving a boost as the bond market benefits from the present investor uncertainty in the stock market".

The seasonally adjusted Purchase Index reached its second highest level ever, increasing to 397 from 359 the previous week. Its record level was 414, set the week ended May 31, 2002.

The seasonally adjusted Refinance Index increased to 2505 from 1764 the previous week. The last time the refinance index was above the current level was the week ended December 7, 2001, when it stood at 2732.

The market composite index of mortgage loan applications-a combined measure of total mortgage loan applications-increased 24.8 percent to 706 on a seasonally adjusted basis from 566 the previous week. The last time that the market composite index was higher was the week ended November 30, 2001, when the index reached 746.

Refinancing applications represented 50.0 percent of the total, increasing from 43.6 percent the previous week. The last time the refinance share was above 50 percent was the week ended March 1, 2002 at 51.7 percent.

The ARM share of applications increased to 18.6 percent from 18.0 percent the previous week. That is the highest ARM share since the week ended June 16, 2000, when it reached 19.5 percent. "Though refinancing activity had been strong in the first half of 2002, it had declined from its records levels in

October and November of last year," Duncan said. "We have felt that to ignite another boom, rates would have to break through the magic 6.5 percent barrier which they did the past week. If rates stay there for a time or fall more we will have another major wave of refinancing."

The average contract interest rate for 30-year fixed rate mortgages was 6.45 percent, decreasing from 6.53 percent the previous week, with points increasing to 1.53 from 1.44 the previous week**. The most recent time the 30-year fixed rate was below last week?s level was the week ended November 9, 2001 when it reached 6.37 percent. The lowest 30-year rate in the twelve-year history of the Weekly Applications Survey was 6.36 percent, reached the week of October 2, 1998.

The average contract interest rate for 15-year fixed rate mortgages was 5.90 percent, decreasing from 5.94 the previous week, with points decreasing to 1.32 from 1.36 the previous week**. The previous time that the 15-year fixed rate was below 5.9 percent was the week ended November 9, 2001, when it reached 5.79 percent, its all time low.

The average contract interest rate for 1-year ARMs was 4.17 percent, decreasing from 4.22 percent the previous week, with points decreasing to 1.08 from 1.12 the previous week**. The most recent time that the 1-year ARM rate was lower was the week ended February 11, 1994, when it reached 4.11 percent. The record low for the 1-year ARM rate was set the week ended October 8, 1993 when it reached 3.83 percent.

"It just doesn?t get much better than this for interest rates on any loan type, whether fixed or adjustable," Duncan continued. "The 30- and 15-year fixed rates and the 1-year ARM rate are near record lows. The spread between long rates and short rates was 231 and 228 basis points the last two weeks. The last time it was greater was the week ended January 20, 1995, when it reached 247 basis points.

"With rates at 30 year lows, consumers are jumping at the chance to take out a low rate home purchase loan or refinance their existing mortgage to a better rate. The average size of a mortgage loan has also been increasing recently as jumbo ARM holders refinance, home prices continue to appreciate, and borrowers tap equity through refinancing. Last week?s average loan size was $206,500, the largest on record.

"Because of various demographic factors, including household age distribution and immigration, we expect that the housing market will stay strong over at least the next decade," Duncan said.

Source: Mortgage Bankers Association

Contact ALTA at 202-296-3671 or [email protected].