Weekly Mortgage Activity hit a lull as contracted average mortgage rates increased last week, but an important component data-point within the Mortgage Bankers Association report reminded us that better days lie ahead for housing. In fact, they appear to have already begun.
Mortgage activity had benefited over recent weeks on the precipitous decline of mortgage rates. But last week, as average contracted rates on 30-year and 15-year fixed rate mortgages increased to 4.69% (from 4.6%) and 3.78% (from 3.75%), respectively, activity lulled. The MBA’s Market Composite Index only inched ahead 1.1% against the prior week on a seasonally adjusted basis. Purchase activity continued higher as well, with the seasonally adjusted Purchase Index gaining 1.5% against the immediately preceding period.
As expected, the Refinance Index creeped just 0.9% ahead as rates moved higher. We expect most Americans have refinanced their mortgages over the last decade, and the latest deep drop in rates surely swept up some of those who should have refinanced previously. We expect many recent buyers locked in better rates over the last few weeks as well. The refinance share of the mortgage market still increased a tenth of a percentage point though, to 66.8%. The adjustable rate mortgage [ARMS] share of mortgages dropped to 5.8%, against 6.3% the week before.
Many might look to this lull in weekly activity as yet another sign of a still dreadful and dead housing market, but we noticed something important in this week’s MBA data. The Purchase Index marked a point 3.1% above its comparable from a year ago. Last week’s report showed the Purchase Index 1.7% above its prior year comparable. And the report from two weeks ago, which covered the period ending May 6, showed the Purchase Index 25.8% below the prior year comparable. What does this data trend tell us?
Last year’s First-Time Homebuyer Tax Incentive Program drove a spike in mortgage applications and home purchases last spring. However, we’re now approaching the point in the year where it stopped doing so. In effective terms, that spike from three weeks ago likely marked a prior year tax incentive deadline for home purchases to qualify for the program. With two sequential weeks of year-to-year growth now marked, and with the yearly rate of growth increasing, it seems we have entered the portion of 2011 that will drive the real estate market growth most industry organizations have forecast for this year.
This week’s reported New Home Sales growth for April had nothing to do with comparable softness though, and thus offers independent reason for a tasting of optimism. Furthermore, Toll Brothers’ (NYSE: TOL) earnings report from just a day ago showed signs of life in the high-end of the market. TOL marked increased deliveries, contract signings and price improvement in its reported quarter. Thus, it appears clear to us that the real estate market has already begun to grow again.
Study of the National Association of Realtors (NAR) economic forecasts shows the industry organization’s expectation for 7.7% growth in existing home sales this year. While the NAR sees slightly lower New Home Sales in 2011, it still sees the start of quarterly improvement this quarter. Speaking in annual terms, housing starts are expected to rise and even residential construction is expected to start up again. So, with my apologies to pessimistic blowhards, I must declare the real estate market is now off its bottom. At this point, it’s up to investors to look to profit or sit back and watch from the rear.