The summer mortgage refinance season is in full swing as the Mortgage Bankers Association reports a 15.5% increase in applications the week of July 15. The hike is the biggest increase in the past four months thanks to deflated rates and continuously attractive prices.
According to a statement by Michael Fratantoni, MBA's vice president of research and economics, "Ongoing turmoil in the financial markets primarily due to the sovereign debt crisis in Europe has brought mortgage rates back to their lowest levels of the year. Refinance applications have surged in response."
Although mortgage application surges have been historically attributed to new home purchases, today’s rise is derived almost completely from refinances. The MBA reports the seasonally adjusted index for refinance applications rose 23.1% whereas applications for home purchase actually dove 0.1%. Refinances have made up 70.1% of all incoming mortgage applications, which is up from 65.6% from the week prior--this is the second highest level for 2011.
Additionally, the market index is up 0.3%, with refinances 0.5% higher. The purchase index reflects the current trend by falling 0.3%.
Rates remain considerably low, however the market has not seen a significant change from week to week that would solely prompt an application increase. According to the MBA report, rates only inched down from 4.55% to 4.54%--a marginal decrease, certainly unsubstantiated for an application rally.
In fact the MBA have graphed the influence of the 30-year fixed mortgage rate and refinance applications, illustrating how lower rates may have historically generated a higher refinance demand, but is not the case today.
Why Did Refinance Applications Jump?
If it’s not rates, why have refinance applications increased with in the past week? The Hill blogger, Vicki Needham speculates (based on Fratantoni’s statement) that “one factor contributing to the share rise in refinancing is that borrowers potentially affected by impending decreases in the conforming loan limit could be opting to lock in fixed-rate financing now.”
Money experts from MSNBC point to Fratantoni’s reasoning about the debt ceiling despair prompting investors to turn to US Treasuries versus risky Euro backed securities. Ongoing investor concerns about Europe may also continue to keep domestic refinance demand strong.