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Categorized | Property

US mortgage applications from homebuyers soar 13%

Posted on November 23, 2016

US mortgage applications soared last week as homebuyers rushed to secure loans before interest rates rise further.

The market composite index, a measure of mortgage application volume issued by the Mortgage Bankers Association, increased 3 per cent for the week ending on November 18.

Applications for mortgages to buy houses jumped 13 per cent, while those to refinance existing loans fell 3 per cent from a week earlier to their lowest level since January.

The increase in homebuyers’ activity comes as mortgage interest rates have risen following the US presidential election, spurred by expectations that Donald Trump will boost US growth through tax cuts and infrastructure spending.

“This has a lot to do with the election,” said Walter Schmidt, head of mortgage strategy at FTN Financial. “Anyone who had any plans whatsoever to purchase a home is trying to lock in their loan as soon as they can.”

The size of mortgages also rose, with the average amount reaching $310,000, its highest level since the index began in 1990. House prices have been rising in the US — data from the Federal Housing Finance Agency on Wednesday showed a 1.5 per cent increase in the third quarter to levels last seen in 2007.

Data also released on Wednesday from Freddie Mac, a mortgage guarantor, show the average fixed 30-year mortgage rate has risen to 4.03 per cent from 3.94 per cent a week ago, topping 4 per cent for the first time this year.

Mortgage applications typically slow down in winter months before picking up again in late spring ahead of school holidays. On a seasonally adjusted basis, the pick-up in purchase volume hit 19 per cent for the week.

The rise in US house prices has led to the first increase since the 2008 financial crisis in the size limit for mortgages eligible for government backing, which will take effect next year.

Refinance volume dipped for the week. This was largely because mortgage interest rates had begun to rise before the US election, and because most homeowners had already refinanced at lower rates as policymakers kept interest rates low.

“Most homeowners have a rate of 4 per cent or below,” said Michael Fratantoni, chief economist at the MBA. “Now with mortgage rates above 4 per cent you have very few homeowners with any incentive to refinance.”

Mr Fratantoni expects home purchases to continue to rise, forecasting 10 per cent growth in mortgage applications to purchase homes in 2017.

“The higher rates are reflecting a stronger economy and the stronger economy is supporting stronger purchase volume,” he said.