U.S. mortgage applications climbed 12 percent last week as the lowest borrowing rates in four months spurred homebuying. Loan refinancing rebounded as rates declined, giving consumers more cash to spend.
The Mortgage Bankers Association's gauge of applications to buy and refinance homes increased to 689.4, the highest since the first week of May, from 616.1 the week before. The index of applications to refinance home loans surged 21 percent to 1,982.7.
"As mortgage rates have retreated in recent weeks, both homebuyers and homeowners have responded aggressively," said Steven Wood, president of Insight Economics LLC. The Fed's policy of increasing short-term interest rates "has failed to dampen housing-related activity."
New-home sales in May and June were the strongest two months on record, Commerce Department figures show. The mortgage bankers' purchasing index rose 6.2 percent to 467.1, suggesting home demand remains strong. In January, the measure reached a record of 501.6.
Michael Englund, chief economist at Action Economics in Boulder, Colo., said, "On a year-over-year basis, mortgage rates are still quite low and even historically low."
Applications to refinance loans accounted for 41 percent of all applications, up from 37 percent a week earlier. The percentage of applications for adjustable-rate mortgages was little changed at 34 percent.
"People keep saying that refinancing has had its last gasp, but the broader trend in interest rates remains downward," Englund said. "The refinancing boost helps the economy, and mortgage applications for new homes is also stimulative because people have to purchase items to furnish that new home."
The amount of home equity converted into cash by home-loan refinancing probably will fall 48 percent this year to a four-year low of $71.7 billion, Freddie Mac, the No. 2 buyer of home loans, said this month. Equity extraction using cash-out loans, or mortgages refinanced at higher balances, reached a record $138.1 billion last year and helped spur consumer spending.
Homeowners turned about $20 billion of home equity into cash by refinancing during the second quarter, down from $23 billion in the first, said Amy Crew Cutts, a Freddie Mac economist.
The drop in equity extraction came as the dollar volume of loans refinanced at higher balances rose to $162.2 billion in the three months through June, from $134 billion in the first quarter, and as the total refinancing volume rose 30 percent to $416 billion, Mortgage Bankers Association data show.
The mortgage bankers survey covers approximately 50 percent of all retail residential mortgage originations and has been conducted weekly since 1990.
The base period is March 16, 1990, when the value for all indexes was 100.