Mortgage demand jumped by a whopping 11% this week, according to the Mortgage Bankers Association’s seasonally adjusted index. This increase happens despite continued economic instability. Recent, historic negative GDP growth and significant signs of contraction in the manufacturing sector underscored how bad things truly are. That’s a big jump as mortgage applications have plummeted 41% year over year. This increase comes on the heels of a second straight weekly drop in mortgage interest rates.
The most commonly cited average contract interest rate for 30-year fixed-rate mortgages fell from 6.89% to 6.84%. This is true for conforming loan balances of $806,500 or less. Mortgage points also rose, from 0.67 to 0.68. This number factors in the up-front origination fee on all loans, assuming a 20% down payment.
Demand for purchase, or primary mortgages to buy homes, rose 11% from the week prior. This figure is all the more astonishing when we look at the same week last year. As a result, we’ve experienced a stunning 13% jump in applications! More encouragingly, VA loan applications jumped the most this week by a gigantic 26%.
On the heels of increasing purchase activity, refinancing got a big jolt, with applications up 11%. Compared to one year ago, refinancing applications are up more than 51 percent. Despite these positive trends, the rate for 30-year fixed-rate mortgages remains 34 basis points higher than this time last year.
That’s the rub, as Michael Fratantoni, chief economist for the Mortgage Bankers Association said. He stated, “a surprisingly strong move given lingering economic uncertainty.” He further noted that “borrowers of conventional loans tend to have larger loan sizes and are more apt to be move-up buyers.”
The spike up in mortgage demand is distinctively upbeat. That’s if mortgage rates remain stable, which experts are cautioning may not be the case with the Federal Reserve meeting on Wednesday. Actions taken at this meeting will shape the course of monetary policy, with implications for future borrowing costs.
The April housing market was called “markedly sluggish,” and with the economic news that has come out since then, it looks like trouble is brewing. The negative reading for first-quarter GDP growth and further signs of contraction in the manufacturing sector underscore the complexity of the current economic landscape.