Application Volume Rises in March as Purchase Loans See Upward Trend

While the refinance boom ""is coming off the boil,"" mortgage application data for March has ""Capital Economics"":https://www.capitaleconomics.com/ confident that home purchase application volume is in the early stages of a sustainable comeback.

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According Wednesday's US Housing Data Response--which compiles application data measured by the ""Mortgage Bankers Association"":http://www.mbaa.org/default.htm (MBA)--applications for refinancing rose 2.6 percent month-over-month and 16.6 percent year-over-year in March. However, while the month as a whole saw an increase, property economist Paul Diggle noted a 5.6 percent drop in March's final week. (MBA's Weekly Mortgage Applications Survey, also released Wednesday, rounded up to a 6 percent decline in refinance applications for the week ending March 29.)

Though refinance demand is expected to fall off this year, Diggle believes we shouldn't take it out of the picture yet.

""While we may be coming to the end of the two-year long refinancing boom, continued low mortgage rates and rising house prices taking more borrowers out of negative [COLUMN_BREAK]

equity should ensure that refinancing volumes don't fall away completely,"" he writes.

At the same time, applications for purchase loans rose 4.5 percent from February to March and 11.4 percent over the past year--indicating an upward trend, even if volume is still low by historical standards.

For the week ending March 29, MBA reported a 1 percent increase in its seasonally adjusted Purchase Index (2 percent unadjusted).

""As we've highlighted before, demand from mortgage-dependent buyers will have to strengthen a lot further to keep the housing recovery going,"" Diggle comments. ""But a gradually improving labour market, slightly looser credit conditions, and a growing appetite to buy housing should combine to ensure that happens.""

Meanwhile, the average interest rate for a 30-year fixed rate mortgage throughout March was 3.78 percent, an increase of 2 basis points over February. For the month's final full week, MBA recorded an average interest rate of 3.76 percent, down from 3.79 percent the prior week.

While March's average rate was the highest in seven months, Diggle said the bigger story is that mortgage rates are still ""incredibly low."" Moreover, he expects them to stay that way.

""More generally, while some commentators expect mortgage rates to rise sharply from here, we wouldn't be surprised if rates remained around this level until the end of this year and even into 2014,"" he writes. ""After all, further flare-ups of crisis in the euro-zone are likely to lead to bouts of safe-haven demand for Treasuries, which would weigh in on mortgage rates.""