Mortgage applications declined at the end of the year as interest rates climbed, but ""Capital Economics"":https://www.capitaleconomics.com/ expects applications to rise this year as both the housing market and broader economy continue to improve.[IMAGE]
""[C]redit conditions have been gradually loosening, rising house prices are reducing levels of negative equity and the improvement in the wider economy will help repair credit scores and put household balance sheets on a sturdier footing,"" Capital Economics stated Wednesday.
December applications are 10 percent lower than one year ago, according to Capital Economics.
Purchase applications declined 5.4 percent over the month of December, reaching a two-year low, according to Capital Economics, while refinance applications plummeted 23.7 percent to their lowest level since 2008.
The ""Mortgage Bankers Association (MBA)"":http://mba.org/default.htm also reported a decline in applications in its most recent ""Weekly Mortgage Applications Survey."":http://mba.org/NewsandMedia/PressCenter/86736.htm Applications declined 2.6 percent over the week ending January 3.
Refinance applications declined 5 percent from the previous week.
Refinances made up 63 percent of mortgage applications for the week, unchanged from the previous week, according to the MBA.
Purchase applications decreased 2 percent from the previous week and 1 percent from the same week last year on a seasonally adjusted basis.
""[T]he level of home purchase applications is in line with that from the mid-1990s,"" according to Capital Economics.[COLUMN_BREAK]
The analytics firm attributes the weak purchase market to tight credit conditions exacerbated by poor credit among potential buyers and negative equity.
Rising mortgage rates are also contributing to the decline in overall mortgage applications of late.
The average 30-year mortgage rate increased from 4.4 percent to 4.6 percent in December, according to Capital Economics. This rise took place even before the Fed's announcement that it will begin tapering asset purchases.
However, Capital Economics suggests the rise in rates ""reflects market expectations for tapering to begin in the weeks before the actual decision.""
The MBA reported little change in mortgage rates over the most recent week.
The average rate for a conforming, 30-year, fixed-rate loan held steady at 4.72 percent, 0.28 point, while the rate for a 30-year, fixed-rate jumbo loan remained unchanged at 4.66 percent with points falling from 0.27 to 0.12.
FHA-backed, 30-year, fixed-rate loans averaged 4.36 percent over the week, up slightly from 4.35 percent and with points remaining the same at 0.15.
Interest rates for 15-year, fixed-rate loans averaged 3.77 percent, up from 3.73 percent the previous week, with points down from 0.4 to 0.34.
Interest rates for 5/1 ARMS rose from 3.31 percent to 3.33 percent over the week, while points fell from 0.46 to 0.44.
Capital Economics reminds us that ""mortgage interest rates are still at a low level on a historical comparison.""
The historical average rate for 30-year loans over the past two decades is 6.3 percent, well above today's 4.6 percent.
""That means that even after the recent rise in rates, housing remains affordable,"" Capital Economics said.
As credit conditions continue to relax, while potential home buyers improve their credit scores with the help of a recovering economy, ""we expect mortgage activity to pick up this year,"" Capital Economics said.