Tax Credits Expire, Mortgage Applications Plummet

Mortgage applicationsA key survey of mortgage applications plummeted 27 percent last week to a level not seen since 1997, signaling a downturn in home purchases following the expiration of homebuyer tax credits, according to the Mortgage Bankers Association.
The tax credits expired April 30. The purchase index by the Mortgage Bankers Association decreased 27.1 percent from a week earlier, and was 24.1 percent lower compared to the same period a year ago.
It is the lowest level for the MBA’s purchase index since May of 1997.
The tax credits provided up to $8,000 for first-time homebuyers, and up to $6,500 for qualified repeat buyers.
“The data continue to suggest that the tax credit pulled sales into April at the expense of the remainder of the spring buying season.  In fact, this drop occurred even as rates on 30-year fixed-rate mortgages continued to fall, and at 4.83 percent are at their lowest level since November 2009,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. 
The mortgage financing industry saw a much more positive outlook in the category of refinancing. The MBA’s refinance index jumped 14.5 percent from the previous weeks.
Refinancing activity is being bolstered by historically low mortgage rates.
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.83 percent from 4.96 percent the previous week, with points increasing to 1.08 from 0.91 for 80 percent loan-to-value (LTV) loans.
“Refinance borrowers did react to these lower rates, with refi applications up almost 15 percent, hitting their highest level in nine weeks,”  Fratantoni said.

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