Mortgage Applications Rise After Holiday, but So Do Rates

Mortgage Applications Rise After Holiday, but So Do Rates
Daniel Acker/Bloomberg via Getty Images
By Diana Olick | @diana_olick

Despite adjustments for the Labor Day holiday the previous week, mortgage applications surged last week, even amid rising rates.

Total application volume rose 7.9 percent week-to-week, according to the Mortgage Bankers Association, driven mostly by refinances, which doesn't jibe with the rise in rates.

Applications to refinance rose 10 percent from the previous week, but are still down 22.5 percent on year. Mortgage applications to purchase a home rose 5 percent from the previous week but are down 10 percent on year.

"Given the volatility in activity around the long weekend, it can be helpful to look at the change over a two week span: refinance applications are down 1.4 percent while purchase applications are up 2.1 percent," said Mike Fratantoni, MBA's chief economist.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($417,000 or less) increased to 4.36 percent, the highest level since June, from 4.27 percent.

"Regardless of the seasonal volatility in the applications numbers, the bigger issues remain. Rates had been stagnant at their lowest levels of the year until moving higher fairly quickly in September, in part based on speculation that today's Federal Reserve announcement would accelerate the rate hike timeline," said Matthew Graham of Mortgage News Daily. "While the Fed's policy rate doesn't directly affect mortgage rates, the indirect effect of such a shift could mean that rates continue moving higher, and that would only be bad for refinance demand."

The refinance share of mortgage activity increased to 57 percent of total applications, the highest level since February, while the adjustable-rate mortgage, or ARM, share of activity increased to 7.6 percent.

A snapshot of mortgage volume by Guaranteed Rate, a retail mortgage lender, found that ARMs took off dramatically in the second quarter compared with a year ago, rising from 9 to 16 percent of total loan volume.

"ARMs' rapid rise in the share of the total volume indicates that home buyers are feeling more comfortable with this type of loan product after shying away from it in the wake of the financial crisis," according to the report.

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Mortgage Applications Rise After Holiday, but So Do Rates
In 2013, the median lot size of a new sold single-family house was 8,596 square feet, or just under 0.2 acres. While that might not seem like a lot for you suburban homeowners, a regional breakdown shows that the small average size isn't due to urban inhabitants alone. The Northeast enjoys the largest average lot, at 13,052 square feet, while the less densely populated South and West lay claim to just 8,649 square feet and 6,796 square feet, respectively.
From a footprint of 1,650 square feet in 1978, the average American home has grown 50 percent, to 2,478 square feet. Yet tough times seem to be squeezing our expansionary attitude. Although new single-family homes sold in 2013 clocked in at a median 2,478 square feet, single-family homes completed in 2013 amounted to just 2,384 square feet. Homebuilder confidence has plummeted into pessimism in the last few months, hinting that the housing market's road to recovery might be rougher than expected.

While birth rates have held relatively steady for the past 40 years, everyone apparently needs more elbow room. The share of homes with four or more bedrooms has jumped from 27 percent in 1978 to 51 percent in 2013. And where would a bedroom be without a bathroom? While just 8 percent of 1978 homes had three or more baths, 37 percent of homes now fall in that category.

From 2008 to 2013, both the share of homes with four or more bedrooms and the share of homes with three or more bathrooms have jumped 10 percentage points, while median square footage is up 10.9 percent for the same period.
 

If there's one strong sign of new housing demand, it's home prices. After nose-diving during the Great Recession to a median sales price of just $216,700, home prices have been roaring back up. In 2013, the median sales price for a new single-family home was $268,900. But for those on the housing hunt, don't be discouraged. Home prices today still don't hold a candle to costs in 2006, according to the well-regarded Case-Shiller Home Price Index. In 2006, the index topped 200 before plummeting to less than 140, and current rates put the index just above 170.
It is America, after all. Our industrialized nation was built on the back of Henry Ford, and America is in no danger of breaking its automobile addiction. In 2013, a whopping 300,000 of the 429,000 new single-family homes sold included a two-car garage. And 98,000 new homes included a three-car garage -- the highest amount since 2007. Of all new homes built, only 10,000 failed to include a garage or carport.
American homebuyers are building bigger homes than ever before. But if there's one thing the recent recession has shown us, bigger isn't always better. Although 30 percent of Americans believe real estate is the best long-term investment, homeownership isn't for everyone. There are plenty of reasons to spend less or invest elsewhere -- and leave keeping up with the Joneses to Mr. and Mrs. Smith.
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