Mortgage Applications Index Takes 12.2% Dive, Despite Low Rates

Mortgage applicationHomebuyers have yet to return to a market feeling the aftershocks of the April 30 tax credit expiration – despite near or record low rates, according to the Mortgage Bankers Association’s weekly index of purchase and refinance applications.
The MBA’s overall index measuring mortgage loan volume slid 12.2 percent last week, even after an adjustment to account for the Memorial Day holiday. On an unadjusted basis, the index decreased 21.1 percent, compared with the previous week.
The organization’s index that measures home purchase applications is down more than a third since the expiration of tax credits for first-time and repeat homebuyers of up to $8,000. Analysts have expected a slump in activity in the aftermath of the deadline as homebuyers who would have entered the market during summer months may have rushed to take advantage of the tax credits.
Now, housing market experts fear refinancing activity has dried up, in part because of the growing number of “underwater” homeowners who owe more than the value of their properties and are unable to qualify.
Last week, the MBA’s refinancing index took the biggest plunge, down 14.3 percent compared to the previous week. It is the first time in a month that refinancing- bolstered by low mortgage rates – has seen a decrease.
The refinance share of mortgage activity decreased to 72.2 percent of total applications from 73.8 percent the previous week.
The purchase index slid 5.7 percent last week.
“Purchase and refinance applications dropped this week, even after an adjustment for the Memorial Day holiday,” said Michael Fratantoni, MBA’s vice president of Research and Economics.  “Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April.”
The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.81 percent from 4.83 percent for 80 percent loan-to-value (LTV) ratio loans, the MBA said. The average contract interest rate for 15-year fixed-rate mortgages increased to 4.26 percent from 4.24 percent.
“Although rates remained essentially flat, refinance applications dropped this past week for the first time in a month,” Fratantoni said. “Despite the historically low rates, many homeowners have already refinanced recently, remain underwater on their mortgages, have uncertain job situations, or have damaged credit following this downturn, and therefore may not qualify to refinance.”

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