U.S. mortgage applications jumped last week as record low interest rates spurred a surge in demand for home refinancing loans, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, increased 32.2 percent to 1,159.4 for the week ended March 20. Refinancing accounted for 78.5 percent of all applications.
Interest rates on mortgages fell after the Federal Reserve last week said it would buy Treasury securities for the first time in more than four decades as well as more than double its planned purchases of mortgage-related securities, according to Orawin Velz, associate vice president of economic forecasting at the MBA in Washington.
The drop offered a sizable refinance incentive for most homeowners, sparking a pick-up in refinance activity, she said in a statement.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 4.63 percent, down 0.26 percentage point from the previous week, reaching a record low, the MBA said. It has been conducting the weekly survey since 1990.
Interest rates were well below year-ago levels of 5.74 percent.
Leif Thomsen, chief executive of Mortgage Master in Walpole, Massachusetts, said his company is doing more business now than every before, with just over $1 billion in total mortgage lending since the beginning of the year, 85 percent of which has been in refinancing.
The housing market is coming back, but not roaring back, he said. We have gone from a crawl to a brisk walk and we will still have to navigate some pitfalls before we are able to get running again.
The Fed's purchases are part of its ongoing efforts to reduce mortgage rates to stimulate borrowing and boost the U.S. housing market, currently in the throes of the worst downturn since the Great Depression.
However, so far, the low rates have had only a moderate impact on demand for loans to buy homes.
The MBA's seasonally adjusted purchase index rose 4.2 percent to 267.8. The index, however, was 33.7 percent below its year-ago level of 403.7.
Overall mortgage applications last week were 20.0 percent above their year-ago level. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 13.9 percent.
WEEKLY REFINANCING ACTIVITY SURGES
Mortgage Master, to keep up with sales, has hired over 100 people in the past 90 days alone, Thomsen said.
There are some fantastic deals out there and as more people begin to realize that, competition will come back and drive a significant amount of activity, he said.
The Mortgage Bankers seasonally adjusted index of refinancing applications surged 41.5 percent to 6,363.2. The index was up 49.5 percent from its year-ago level of 4,255.2.
The refinance share of applications increased to 78.5 percent from 72.9 percent the previous week. The adjustable-rate mortgage share of activity decreased to 1.4 percent in the latest week, down from 2.0 percent the previous week.
Fixed 15-year mortgage rates averaged 4.48 percent, down from 4.52 percent the previous week. Rates on one-year ARMs increased to 6.22 percent from 6.20 percent.
(Editing by Leslie Adler)