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| The Basics | Pace of home refinancings increases
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Bankers say more than 60% of loans are refinancings, the highest since mortgage rates touched all-time lows last summer. New home sales are unexpectedly hot, too.
By Aleksandrs Rozens, Reuters
Requests for mortgage loan refinancings rose slightly last week as homeowners sought to take advantage of low rates, despite a scant rise in U.S. mortgage rates, a report said on Wednesday.
The Mortgage Bankers Association said its measure of demand for mortgage refinancings, the refinancing index, rose 0.1% to 4,988.7 in the week ended March 19. Refinancings accounted for over 60% of loans processed by lenders last week, and the volume of refinancings is at its highest point in eight months, according to the MBA.
Average interest rates on 30-year mortgages rose 0.1 basis point to 5.28% in the March 19 week, but are down 43 basis points from a year ago.
"There is a lot interest in refinancing at these interest rates. This story still is not over," said Drew Matus, senior financial economist at Lehman Brothers.
No end in sight
The pace of lending, already lively, is expected to continue at a hectic pace in coming weeks, economists said.
"It is going to be maintained for the next couple of weeks. Two-thirds of the loans could be refis," said Frank Nothaft, chief economist at Freddie Mac, before the report was released. "Any time you have mortgage rates at such a low level, there is a lot of incentive for families to come out and refinance their mortgage."
According to Nothaft, 30-year home loan rates last September were at about 6.25%. Now, with rates at 5.38%, borrowers can save close to three-quarters of a percentage point in borrowing costs, the Freddie Mac economist said.
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Refinancings help borrowers cut monthly mortgage costs. They can also help homeowners draw equity from their homes through cash-out refinancings.
"I think what this shows is that low rates have the potential to continue to help prop up the consumers, at least in the near-term," said Lehman's Matus.
A 'feeding frenzy'
Meanwhile, the MBA's market index, a measure of overall lending activity, fell 0.2% to 1,114.9. The decrease was driven by a drop in the MBA's purchase index, a gauge of requests for loans to fund home purchases. It fell by 0.8% to 448.9 from 452.4 in the prior week.
"Purchases are still incredibly strong," said Thomas Meyer, president of Homebuilders Financial Network, a firm which helps set up and operate mortgage finance companies for large home builders, on Tuesday before the report was released.
Meyer, whose firm has seen an increase in business of 10% to 13% year-to-date from 2003, said the desire for homeownership and low mortgage rates have created an ideal environment for the housing industry.
"At today's rates if you look at the rent-versus-buy scenario, owning may be more affordable than renting," Meyer said. Low down payments and the promise of appreciation in value have kicked up a "feeding frenzy" for homes, he added.
New homes are unexpectedly hot, too
Sales of new U.S. homes surged unexpectedly in February to their highest level since August, a Commerce Department report showed on Wednesday, suggesting the housing market continues to benefit from low interest rates.
Commerce said sales of new homes rose a stronger-than-expected 5.8 percent to a seasonally adjusted 1.163 million annual pace in February, the fastest rate since August 2003's 1.190 million clip.
January new home purchases were revised lower, however, to a 1.099 million rate from the initially reported 1.106 million pace.
February's results came in above Wall Street expectations for sales at a 1.098 million rate and showed home buyers were not deterred in February, even as builders slowed construction of homes. Compared to February 2003, new home sales were up a hefty 24.4 percent.
The supply of new homes relative to demand also dipped in February, and, at 3.8 months' worth, showed the leanest inventory of new homes on the market since September.
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