by Calculated Risk on 5/12/2010 07:21:00 AM

The MBA reports: Refinance Applications Surge, Purchase Applications Drop in Latest MBA Weekly Survey

The Market Composite Index, a measure of mortgage loan application volume, increased 3.9 percent on a seasonally adjusted basis from one week earlier. ...

The Refinance Index increased 14.8 percent from the previous week and the seasonally adjusted Purchase Index decreased 9.5 percent from one week earlier. ...

“The recent plunge in rates on US Treasury securities, due to a flight to quality as investors worldwide sought shelter from the Greek debt crisis, benefitted US mortgage borrowers last week. Rates on 30-year mortgages dropped to their lowest level since mid-March. As a result, refinance applications for conventional loans jumped, hitting their highest level in six weeks,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “In contrast, purchase applications fell almost 10 percent in the first week following the expiration of the homebuyer tax credit, as the tax credit likely pulled some sales into April that would otherwise have occurred in May or later.”

... The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.96 percent from 5.02 percent, with points decreasing to 0.91 from 0.92 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

Click on graph for larger image in new window.

This graph shows the MBA Purchase Index and four week moving average since 1990.

We expected the Purchase Index to increase in April - and then turn down in May since the tax credit expired at the end of April (buyers need to close by June 30th). The tax credit related peak in purchase activity is probably behind us.

As Fratantoni noted, the decline in mortgage rates (below 5% again on a 30 year fixed) resulted in a surge in refinance applications last week.