Mortgage Rate Below 5 Percent, Spurs Demand in U.S.
Mortgage rates in the United States fell below five percent last week, boosting demand for loans after home-buying applications dropped to an almost 13-year low in the previous week, said the Mortgage Bankers Association on Wednesday.
February’s unpredictable fluctuations in the demand for homes came shortly after a sharp sales slump in January, attributed primarily to abnormally harsh winter weather.
The Mortgage Bankers Association market index, which tracks requests for loans to purchase homes and refinance, increased by a seasonally adjusted 14.6% during the week that concluded February 26 to the highest point since mid-December.
Applications to purchase homes rose nine percent while refinancing applications increased 17.2% last week, as the average rate for a 30-year mortgage dropped by 0.08 percentage points to 4.95%.
“Mortgage applications rebounded last week, particularly refis, as rates dropped back below 5 percent,” said Michael Fratantoni, VP of research and economics at MBA, in a statement. “Purchase activity remains subdued, with application volumes remaining within the narrow range seen in the last few months.”
Refinancing home loans accounted for roughly 69% of all applications last week.
The rate for 30-year loans, which MBA said hit an all-time low of 4.61% one year ago, is predicted to go as high as six percent after the Fed concludes its $1.25 trillion in mortgage bond purchases on the 31st of March. The Fed program is intended to keep rates low to regenerate the housing market and the economy.
The road to recovery has been riddled with barriers.
In January, the sales of existing houses dropped by over seven percent to the lowest level since June, and the sales of new homes reached a record low as well.
Snow besieged most parts of the country, but the volatile sales rate in the last few months also results from the stops and starts of the first-time home-buyer credit of $8,000.
The tax credit propelled sales higher last year, as homebuyers acted quickly to beat the November deadline. Ultimately, the tax incentive was prolonged and expanded to include a $6,500 move-up buyer credit, prompting a second wave of housing demand after a brief hiatus.
To qualify for these incentives, borrowers need to complete contracts by April’s end and close on home loans by the end of June.