Housing Recovery Likely as Home Sales Rise

Applications to purchase home mortgages increased for the week marking the first rise in home sales since the federal government’s tax credit expired, indicating that a housing recovery is possible nationally as sales improve, according to the Mortgage Bankers Association. Refinancing also shot up.

Home Mortgage

The Market Composite Index, a measure of mortgage loan application volume, rose 17.7% for the week ending June 11th, but the seasonally adjusted Purchase Index increased 7.3% for the week. The rise represents an increase in home sales nationally for the first time in six weeks.

Refinancing is also picking up with an increase of 21.1% for the week, the association said. It’s the highest the Refinance Index has recorded since May 2009.

“While it is clear that purchase applications in May dropped sharply as a result of the tax credit induced increase in applications in April, it is unclear whether we are seeing the beginnings of a rebound now,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. The four week moving average for the seasonally adjusted Market Index is higher by 3.8%.

Mortgage rates remain near their record low, averaging 4.75% up a slight .03 from a week ago on a

conventional 30-year fixed rate loan, according to Freddie Mac. A year ago the same mortgage averaged 5.38%. Starts on new home construction fell 17% to an annualized rate of 468,000 homes in May from April, triggered by the first time home buyers tax credit.

“Nonetheless, household balance sheets have been improving over the past four quarters,” said Freddie Mac chief economist Frank Nothaft. “In aggregate, households gained $6.3 trillion in net worth in the first quarter from a year ago, according to the Federal Reserve. In addition, homeowners have regained $1.1 trillion in home equity over the same time period.”

Refinancing activity increased to 74.8% of total applications from 72.2% the previous week, the highest refinance share since December 2009. The adjustable-rate mortgage (ARM) share of activity increased a slight 5.2% from 5.1% of total applications over the previous week.

The average contract interest rate for 30 year fixed rate mortgages increased to 4.82% up from 4.81%, with points decreasing to 0.89 from 1.02 for 80 percent loan-to-value (LTV) ratio loans. However, due to the decrease in points, the effective rate decreased from last week.