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Is It Time To Buy Yet?

Mortgage activity surges on falling rates

By Mark Huffman
ConsumerAffairs.com

September 9, 2009
Amid signs of a bottoming housing market, prospective homebuyers may be wondering if it's time yet to take the plunge. The latest report on mortgage loan activity shows an increasing number of people are jumping back into the market. But cautionary signs remain.

In its Weekly Mortgage Applications Survey for the week ending September 4, 2009, the Mortgage Bankers Association reports its index of mortgage loan application volume increased 17.0 percent on a seasonally adjusted basis from one week earlier. For one week, that's a huge jump.

On an unadjusted basis, the Index increased 15.8 percent compared with the previous week and 64.5 percent compared with the same week one year earlier.

True, the majority of people taking out new mortgages were refinancing existing loans, not buying new property. The Refinance Index increased 22.5 percent from the previous week, the biggest jump since mid-March. But the seasonally adjusted Purchase Index increased 9.5 percent from one week earlier, the largest gain since early April and a very respectable showing. The increase puts the index at the highest level since the first week of January.

The four week moving average for the seasonally adjusted Market Index is up 7.0 percent. The four week moving average is up 3.3 percent for the seasonally adjusted Purchase Index, while this average is up 9.7 percent for the Refinance Index.

Falling mortgage rates probably helped drive the increase in mortgage activity. The average contract interest rate for 30-year fixed-rate mortgages decreased to 5.02 percent from 5.15 percent, with points increasing to 1.23 from 1.09 (including the origination fee) for 80 percent loan-to-value (LTV) ratio loans.

The average contract interest rate for 15-year fixed-rate mortgages decreased to 4.45 percent from 4.57 percent, with points increasing to 1.13 from 0.85 (including the origination fee) for 80 percent LTV loans.

The average contract interest rate for one-year ARMs decreased to 6.69 percent from 6.71 percent, with points decreasing to 0.19 from 0.20 (including the origination fee) for 80 percent LTV loans.

But not all housing experts are bullish. While traditional sources for real estate market data are starting to report price increases for the first quarter of the year, the Altos Research 10-City Composite Price Index has resumed a month-over-month decline.

The Altos Composite, which leads traditional housing market data by three to four month, showed seven months of increase in the first half of the year. But home prices as measured by the national real estate market composite decreased by 0.6 percent during August. Prices of properties listed for sale fell in 19 of 26 major markets, were flat in 2 and rose in just 5 markets according to the Real-Time Housing Market Report.

Asking prices rose at the fastest rate in the California markets of San Jose - up 1.7 percent- and San Diego - up 1.3 percent. Prices in only four markets are currently showing at least three months of sequential listing price increases. Asking prices fell at the fastest rate in Phoenix with a decline of 3.5 percent during August and 4.5 percent for the most recent three-month period.

"The powerful effect of seasonality is reasserting itself on housing prices in most markets," said Stephen Bedikian, partner and research director for Real IQ. "Seven months of sequential listing price increases in the Altos 10-City Composite Price Index came to an end this month. The California markets continued upward but their momentum slowed markedly in August."

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