U.S. mortgage applications up last week
May 11, 2005 12:31:00 PM ET

NEW YORK (Reuters) - Applications for U.S. home mortgages rose last week amid a robust uptick in purchasing and refinancing activity, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity increased 9.4 percent to 781.0, adding to the 0.2 gain in the previous week.

"Strong support for home sales has been provided by a recent decline in interest rates, a strong jobs market and nice weather during the spring-buying season," Douglas Duncan, senior vice president and chief economist at the MBA, said in a press release. "These factors have led to a record level of purchase applications on both weekly and four-week rolling averages."

The MBA's seasonally adjusted index of refinancing applications rose 9.8 percent to 2,263.3, after rising 0.4 percent the prior week.

The MBA's purchase index, a gauge of loan requests for home purchases, climbed 9.4 percent 526.2, after it rose 0.1 percent the previous week.

"There is certainly a media effect that is keeping demand for housing high," said Bob Moulton, president of Americana Mortgage Group, a real estate broker based in Manhasset, New York. "People who think they are missing out on something want to get in on real estate even more right now."

Moulton is not in the "housing bubble" camp.

"As long as the U.S. population keeps growing and there is limited land, I do not see a bubble bursting in the housing market," he said.

The strong demand for mortgages came despite higher interest rates on fixed- and adjustable-rate loans last week. Rates, however, had been falling significantly in previous weeks.

According to the MBA, fixed 30-year mortgage rates averaged 5.77 percent last week, excluding fees, up 3 basis points from 5.74 percent the previous week.

Despite the increase, interest rates are much lower than a year ago. The fixed 30-year mortgage rate as of May 7, 2004 was 6.32 percent, MBA data showed.

The average contract interest rate for 15-year fixed-rate mortgages also rose last week, up 3 basis points to 5.34 percent from 5.31 percent a week earlier.

Rates on one-year adjustable-rate mortgages, or ARMs, rose to 4.20 percent from 4.14 percent the prior week.

"Even with the Federal Reserve in a tightening cycle, consumers aren't deterred -- housing remains very strong," said Bob Walters, chief economist at Quicken Loans, the nation's largest online mortgage lender, according to National Mortgage News.

"For home buyers and those considering refinancing, defense is the name of the game right now," he said. "Mortgage rates are expected to rise, so acting now and locking in a low rate is an advisable strategy."

Interest in floating-rate loans versus fixed-rate loans continues to fuel demand for mortgages.

Applications for ARMs rose to 35.3 percent of total applications from 33.4 percent the previous week, the MBA said.

According to the MBA's Duncan, consumers shift to ARMs when long-term rates rise and when the spread between long- and short-term rates widens.

"This happens at the end of every refinance boom, so it's not a surprise that ARM share has risen over the last year," he said. A survey released last week showed an increase in ARMs and interest-only loan originations in the second half of 2004.

"Affordability constraints" have led a number of buyers to seek lower payments with ARMs, Duncan said.

Refinancings also increased as a percentage of all mortgage applications, at 39.2 percent of total applications from 39.1 percent the previous week.

The MBA's survey covers approximately 50 percent of all U.S. retail residential mortgage originations. It has been conducted weekly since 1990.

Respondents include mortgage bankers, commercial banks and thrifts.

© 2005 Reuters