by Calculated Risk on 8/25/2010 07:26:00 AM

The MBA reports: Mortgage Refinance Applications Continue to Increase as Rates Decrease

The Refinance Index increased 5.7 percent from the previous week and is at its highest level since May 1, 2009. The seasonally adjusted Purchase Index increased 0.6 percent from one week earlier.
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“The volume of refi applications last week was up 26% over their level four weeks ago. Mortgage rates dropped to their lowest level in the survey, going back to 1990, as incoming data continue to indicate that economic growth has slowed,” said Michael Fratantoni, MBA’s Vice President of Research and Economics. “We are at a new 15 month high for the Refinance index. With rates this low, many borrowers who refinanced in the past two years may well have an incentive to refinance again, and this is likely increasing refi application activity.”
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The average contract interest rate for 30-year fixed-rate mortgages decreased to 4.55 percent from 4.60 percent, with points decreasing to 0.89 from .92 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans. This was the lowest 30-year contract rate ever recorded in the survey.

Click on graph for larger image in new window.

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

After falling sharply in May, the purchase index has been moving sideways for three months. The index is 41% below the level of the last week of April (and about 31% below the last week of April using the 4-week average).

This collapse in the purchase index has already shown up as a decline in new home sales (counted when the contract is signed), and existing home sales in July. This suggests little increase in existing home sales in August or September (counted when transactions close).