This is an archived article that was published on sltrib.com in 2011, and information in the article may be outdated. It is provided only for personal research purposes and may not be reprinted.
Washington • Mortgage applications surged last week as a drop in borrowing costs led to the biggest gain in refinancing in more than two years.
The Mortgage Bankers Association's index increased 22 percent in the period ended Aug. 5 from the prior week, the Washington-based group reported Wednesday. The group's refinancing measure jumped 30 percent, the biggest gain since March 2009, while the purchase gauge declined 0.9 percent. The average rate on a 30-year fixed mortgage fell to the lowest since November.
Borrowing costs may keep falling after Federal Reserve policy makers Tuesday said they anticipate keeping interest rates low at least through mid-2013 to bolster an economy that was growing "considerably slower" than they previously projected. While refinancing has picked up, limited employment gains and falling property values may restrain purchases.
"The trend has been very soft," Michelle Meyer, a senior economist at Bank of American Merrill Lynch in New York said before the report. "It's being driven by refinancing because interest rates have gotten so low. Purchase applications however remain quite feeble."
The share of applicants seeking to refinance a loan increased to 75.6, the highest level since December, from 70.1 percent the prior week.
The average rate on a 30-year fixed loan fell to 4.37 percent from 4.45 percent the prior week. The average rate on a 15-year fixed mortgage held at 3.52 percent, the report showed.
Recent data indicate that the pipeline of foreclosures in the market is still weighing on the housing recovery. Home values dropped by the most in 18 months for the year ended in May. The S&P/Case-Shiller index of property values in 20 cities decreased 4.5 percent, the group reported last month. Sales of new homes in the U.S. also declined in June for the second straight month.
The Fed is aiming to boost the real estate recovery by providing "underlying support for housing and ignite a refinance wave," Eric Green chief market economist at TD Securities in New York, said Tuesday in a note to clients. "That will improve household cash flow, will improve chances that housing-price declines continue to recede and through these channels achieve a positive impact on household cash flow and household balance sheets."
Central bankers discussed a range of policy tools to bolster the economy at Tuesday's meeting and said they are "prepared to employ these tools as appropriate" in a statement. The decision represents the biggest effort since November to spark the U.S. economy and revive confidence while stopping short of initiating a third round of large-scale asset purchases.
The housing market is suffering due in part to "a very uncertain economic environment," said Robert Martin, vice president of finance and business development for M.D.C. Inc.
"Clearly there are some severe headwinds not only for our industry, but for the economy overall," Martin said on an Aug. 4 conference call with analysts. The Denver, Colo.-based homebuilder reported a second-quarter loss that was larger than analyst estimates.