Record Purchase Activity

Rates edge down
By SAM GARCIA
12/28/2001

Applications for purchase-money mortgages reached a second milestone during the past thirty days; the Mortgage Bankers Association of America (MBA) reported that purchase applications rose 16.5% from last week. The increase helped push purchase applications past the record level reached on November 30, 2001.

MBA economist Phil Colling attributed this week's record purchase activity to "unusually good weather, sustained low fixed mortgage rates, and what appears to be positive attitudes among consumers about the long-term health of the economy."

Frank Nothaft, Freddie Mac's chief economist, said "housing has been a resilient industry, well insulated from the effects of the recession, and continues to be a bright spot in the national economy. Tomorrow (Friday), when the figures for new and existing home sales are released, the market is expecting to see strong levels of activity, highlighting the underlying strength in housing sector."

MBA says that its survey of mortgage bankers, commercial banks and thrifts covers approximately 40 percent of all U.S. retail residential mortgage originations.

Applications for refinance mortgages slid for the sixth straight week, falling more than twenty percent from last week. Refinance activity represented almost half of this week's total applications -- which fell about 2 1/2 percent.

The average thirty-year fixed rate mortgage (FRM) edged down 1 basis point (BPS) from last week to 7.16%, according to Freddie Mac. The average fifteen-year FRM was unchanged at 6.65%.

"The general feeling in the market is that the economy may have bottomed out and recovery is in sight," said Freddie's Nothaft. "It is just that sort of atmosphere that kept mortgage rates from falling this week."

Freddie said that the national average 1-year adjustable rate mortgage (ARM) fell 2 BPS to 5.25 percent, increasing the spread between the 30-year FRM and the ARM to 1.91% -- the widest its been all year.

Freddie says its surveys 125 thrifts, commercial banks and mortgage lending companies each week in a proportion that is similar to the level of mortgage business that each type commands nationwide.

One-half of Bankrate.com's 100 "mortgage experts" expect for rates to remain unchanged during the next 35-45 days, while 25% expect rates to rise more than 2 BPS and 25% expect rates to fall more than 2 BPS. Bankrate.com's "mortgage experts" include mortgage bankers, mortgage brokers and other industry experts who provide residential first mortgages to consumers.

"A fairly tame holiday week brings a brief respite from the recent rate volatility," said Greg McBride, Bankrate.com's financial analyst. "Things may heat up with Friday's economic releases on consumer confidence, home sales and durable good orders."

Freddie's chief economist added, "if the economy begins to overheat and inflation becomes a threat once again, mortgage rates will almost certainly begin to rise in response. Currently, however, inflation is well contained and there is ample room for the economy to recover."

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