Falling Mortgage Rates Fuel Buying Activity

By: Chrystal Caruthers

Mortgage interest rates rolled back to 2013 levels this week on disappointing housing and economic activity.

The 30-year fixed-rate mortgage averaged 3.59% this week, down from 3.66% last week. A year ago this time, it was as high as 4.32%, according to the Freddie Mac Primary Mortgage Market Survey.

“Mortgage rates fell this week following the release of weaker-than-expected pending home sales,” said Len Kiefer, deputy chief economist at Freddie Mac.

Pending home sales fell 3.7% in December, according to the National Association of Realtors®. The Pending Homes Sales Index tallies contract signings. It’s a strong indicator of where the market is headed, since a home is listed as pending only after all contingencies have been met and the deal is simply waiting to close.

“Fewer homes available for sale and a slight acceleration in prices likely led to December’s decline,” said Lawrence Yun, chief economist at NAR. “With interest rates at lows not seen since early 2013, the strength in existing sales in upcoming months will largely depend on the willingness of current homeowners to realize their equity gains from the past couple of years and trade up.”

Demand is improving

Mortgage applications for Federal Housing Administration loans spiked last week in the midst of lower FHA mortgage insurance premiums, according to the Mortgage Bankers Association. Both purchase and refinance activity are up, signaling higher demand for housing.

“More jobs, increasing consumer confidence, less expensive mortgage insurance, and new low-down-payment programs coming into the marketplace will likely lead to more demand from first-time buyers,” said Yun.

Buyers are refinancing, and they’re choosing FHA loans to do so. Refinance applications using FHA loans increased 76.5% after the drop in mortgage insurance premiums. FHA purchase applications increased 12.4%, according to the MBA.

Rates are responding

The 15-year fixed-rate mortgage fell to 2.92% this week from 2.98% last week, according to Freddie Mac. It was 3.4% a year ago.

The 5-year Treasury-indexed hybrid adjustable-rate mortgage averaged 2.82% this week, down slightly from 2.86% last week. A year ago this time, it was 3.12%.

The 1-year Treasury-indexed ARM averaged 2.39% this week, up from 2.38% last week. It is still lower than last year at this time, when it averaged 2.55%.