Mortgage applications rise as home prices remain stagnant

2/7/2014 11:11:54 AM

Mortgage applications rose during the week ending Jan. 31, according to the Mortgage Bankers Association. In its weekly mortgage applications survey, the index rose 0.4 percent from the previous week, indicating that declining mortgage rates are encouraging more Americans to borrow to become homeowners. However, the increase was due to more homeowners applying for a mortgage refinance. The refinance index rose 3 percent from the previous week, while the new home purchase index declined 4 percent.

Over the past few years, more mortgage applications have been for a home loan refinance. The MBA refinance index has hovered around 62 percent of all mortgage activity for the past few weeks. Of all mortgage applications, only 8 percent are for adjustable-rate mortgages, revealing that most Americans prefer to lock in the lower interest rates.

Lower rates in 2014
Mortgage rates for both fixed and adjustable home loans decreased during the first month of 2014 following the Federal Reserve's announcement it would further taper stimulus spending. The average rate for a 30-year fixed-rate conforming home loan fell to 4.47 percent, down from the previous week's average of 4.52 percent. This decline represents the lowest interest rates since November.

Rates for jumbo loans decreased during the week, as well, falling to an average of 4.42 percent, a slight drop from the previous week, when rates average 4.47 percent. Federal Housing Administration mortgages continued to have an advantage with lower interest rates, averaging 4.12 percent. Fifteen-year fixed-rate mortgages reached an average of 3.53 percent, down from 3.59 percent the week before. Adjustable rates hit their lowest point since December, declining to 3.15 percent from 3.25 percent.

The drop in rates is a good sign for borrowers looking to get a low cost mortgage in 2014. As home prices rise, low rate mortgage options are crucial for the housing market to continue growing at an affordable pace. The Fed's fiscal policy and monthly bond purchasing has helped keep interest rates artificially low. However, rates are expected to rise throughout 2014 as the Fed reduces its rate of spending.

Home prices
In a separate report that may also bring some good news to homebuyers, prices in 2014 will rise at a slower and steadier pace than 2013. According to a report by Clear Capital, home prices typically grow at an annual rate between 3 and 5 percent. Prices in 2013 rose 10.8 percent nationwide, making it somewhat difficult for first-time homebuyers to break into the housing market and purchase a home.

According to Clear Capital, the current rate of price growth is only 1.2 percent. For buyers, this means that most housing markets will remain affordable in 2014. Home prices are still well below their peak levels before the recession and, at the current rate of price appreciation, it could be several more years until values have fully returned with inflation adjustments, according to the report.

Contact the Federal Savings Bank, a veteran owned bank, to find out more about affordable mortgage options and the best mortgage refinance rates.