US mortgage applications surged last week to their highest in nearly 2-1/2 years as interest rates plunged, an industry group said on Wednesday. The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended November 30 surged 22.5 percent to 791.8, its highest since July 2005.
The index rebounded from the previous week, when it suffered its biggest drop in three months during the Thanksgiving-holiday shortened week. Many analysts say the MBA's data has been artificially inflated in recent months by turmoil in the housing market and tighter lending standards.
"The data reflects people sending in several applications and when they get rejected, they are probably sending in several more," said Torsten Slok, senior economist at Deutsche Bank in New York. The MBA's data counts all applications, including borrowers who are ultimately denied. Nevertheless, interest rates on mortgages reached enticing levels last week.
Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.82 percent, down 0.27 percentage point from the previous week and its lowest since the week ended September 16, 2005.
Fixed 15-year mortgage rates averaged 5.38 percent, down from 5.69 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 6.28 percent from 6.24 percent. The MBA's seasonally adjusted purchase index, jumped 15.2 percent to 464.3. The index came in above its year-earlier level of 426.6, a rise of 8.8 percent.
Demand for home loan refinancing also surged last week. The group's seasonally adjusted index of refinancing applications skyrocketed 31.9 percent to 2,761.3, its highest since the week ended July 1, 2005, when it reached 2,788.2. The index was up 38.8 percent from its year-ago level of 1,989.7.
The refinance share of applications increased to 56.0 percent from 51.4 percent the previous week. The ARM share of activity decreased to 11.6 percent, down from 14.6 percent the previous week.
Additionally, the MBA's data, which covers about 50 percent of all US retail residential loans, may be overstating activity since it includes only retail lenders such as mortgage banks, commercial banks and thrifts. Overall mortgage applications last week were 22.3 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 4.5 percent to 706.8.
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