Gains in Mortgage Applications Point to Sustainable Trend

After examining mortgage application data throughout April, ""Capital Economics"":https://www.capitaleconomics.com/ sees ""mounting evidence that mortgage-dependent buyers are starting to play a fuller role in the housing market recovery.""

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Compiling information provided by the ""Mortgage Bankers Association"":http://mbaa.org/default.htm (MBA), Capital Economics found that total application volume was up 3.5 percent from March to April.

Demand for home purchase loans provided a significant boost. According to Capital Economics, purchase applications rose 4.6 percent, building on a 4.5 percent gain in March.

Purchase applications have risen for seven of the last eight months, and while volume remains far below pre-crash levels, the firm notes that applications have risen 11.5 percent over the past year and now stand at a three-year high.

The findings ""sit comfortably"" with the rise in mortgage lending demand reported in the latest ""Senior Loan Officer Survey"":https://themreport.com/articles/credit-terms-for-mortgages-esat-in-2q-as-demand-increases-2013-05-06 (SLOS) from the Federal Reserve. Thirty-nine percent of banks responding to that survey reported stronger demand for mortgages in the first quarter--the seventh consecutive quarterly rise.

""Of course, it's difficult to know just how many of these applications are being approved. But given that a net balance of 7.8 percent of lenders reported loosening credit conditions on residential mortgages in the latest SLOS, it's reasonable to assume that more would-be borrowers are passing banks' credit checks,"" writes Paul Diggle, property economist for Capital Economics.

Diggle also observed that banks responding to the SLOS were more likely to extend a loan to a borrower with a 20 percent deposit and a FICO score of at least 680 than they were a year ago, indicating an increasing willingness to lend.

Refinance application volume also rose, propped up largely by a decline in mortgage interest rates to an average 3.67 percent (30-year fixed). Refinance applications were up 3.3 percent month-over-month in April, continuing March's turnaround in demand.

""With the Fed likely to start curbing its asset purchases later in the year, the end of the era of ultra-low mortgage interest rates may be in sight,"" Diggle said. ""But for mortgage payments to return to their long-term average of 22 percent of disposable income, 30-year fixed rates would have to rise all the way to 9 percent! Accordingly, we're optimistic that the nascent improvement in mortgage applications will be sustained.""

In its latest Weekly Mortgage Applications Survey (for the week ending May 3), MBA reported a 7.0 percent increase in applications, with refinance applications up 8 percent and purchase applications up 2 percent week-over-week. The association also reported a decline in government share to 29.1 percent, a two-year low.

The average contract interest rate for a 30-year fixed-rate mortgage was 3.59 percent last week, a decrease from 3.60 percent the week before, according to MBA.