Following October Bump, Mortgage Applications Resume Trend

The latest mortgage application data for last month shows October's revival in refinance activity was short-lived.

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Using weekly application numbers released by the ""Mortgage Bankers Association"":http://mba.org/default.htm (MBA), economic analysis firm ""Capital Economics"":https://www.capitaleconomics.com/ calculated a 1.3 percent decrease in total applications for the month of November. The decline offsets some of October's 7.5 percent improvement and brings application trends back to a downward spiral.

As of November, mortgage applications had decreased on a monthly basis in eight of 2013's 11 months.

The decrease came from a 2.8 percent drop in refinancing, which itself was likely a reaction to interest rate movements, says Paul Diggle, property economist for Capital Economics.

""Remortgaging applications tend to respond to mortgage rates more-or-less instantly, and the latest small decline [COLUMN_BREAK]

probably reflects the two basis point increase in 30-year mortgage rates to an average of 4.43 percent last month,"" Diggle said. ""The bigger picture is that the remortgaging boom has now passed and remortgaging volumes are set to remain subdued for the foreseeable future.""

More important for the outlook of housing, Diggle says, is the trend in purchase applications, which recovered from a drop in October to rise 2.0 percent in November. Some of the recovery may reflect a rebound following the close of October's government shutdown; applications for government-backed mortgages improved 3.8 percent in November, outpacing other market figures.

Nevertheless, MBA's data for the final full week of November shows a 4.1 percent week-over-week decline in purchase application activity, bringing volume down 37 percent compared to the same week last year.

While purchase activity has been more volatile than refinancing--rising in six months so far this year and falling in the other five--Capital Economics expects demand to improve, especially as lenders continue to loosen their standards.

Still, though, the company's projections are marked by uncertainty.

""[T]he most important determinant of mortgage demand will be the response of would-be borrowers to the slow but steady rise in mortgage interest rates that we are anticipating,"" Diggle said. ""Our expectation is that, with rates set to remain low in a historical context, mortgage demand will rise over the next year. But there is clearly a downside scenario in which even a gentle increase in rates prevents a meaningful recovery in mortgage lending.""