Mortgage Applications Post Biggest Increase in Six Years

A tumble in interest rates combined with lower credit costs to send mortgage applications rocketing up after a holiday lull.

The Mortgage Bankers Association (MBA) reported Wednesday that mortgage application volumes jumped by a seasonally adjusted 49.1 percent for the week ending January 9. The surge—the largest weekly increase since 2008, MBA said—followed a sharp drop in 2014's closing weeks.

Driving the increase in large part was a 66 percent spike in refinance applications, which put volumes in that category at their highest level since July 2013 as the average 30-year fixed interest rate fell 12 basis points to 3.89 percent.

"Mortgage rates reached their lowest level since May of 2013, and refinance application volume soared, more than doubling on an unadjusted basis," said MBA Chief Economist Mike Fratantoni. "Conventional refinance volume increased to a greater extent than government refinance volume."

Applications for jumbo refinances also jumped, quadrupling week-over-week and lifting the average refinance application amount to $298,700 from $233,500 the prior week.

The surge in overall refinance applications also boosted the refinance share of total application activity by 6 percentage points, putting it at 71 percent.

MBA's seasonally adjusted measure of purchase applications also saw a substantial increase, climbing 24 percent and ending the week at its highest point since September 2013.

Looking at loan type, the share of total applications for mortgages insured by the Federal Housing Administration (FHA) fell nearly 2 percentage points to 7.5 percent for the week, while the share of applications for Veterans Affairs-backed loans dropped 1 percentage point to 10.7 percent.

While demand for FHA loans fell relative to other categories, that could change in the coming weeks following the recent announcement that the agency will cut its annual premium to 0.85 percent. That change doesn't go into effect until January 26, but borrowers with pending case numbers have an opportunity to temporarily cancel until they can lock in at the lower premium.

Indeed, the announcement did have an apparent immediate effect—though the share of FHA applications was down, actual purchase application volume for FHA mortgages was up by 17 percent week-over-week on a seasonally adjusted basis.