Slow But Steady Recovery Expected For Mortgage Industry

After a surge in mortgage applications last week in the U.S., we may expect to see a slow but steady recovery for the mortgage industry, which has been adversely affected by the recent slump in the housing market. During the week ended October 2, the Mortgage Bankers Association’s (MBA) index of applications to purchase a home or refinance a loan increased by 16% to 756.3 from 649.6 in the previous week.

This increase in mortgage applications has mostly been fueled by lower home prices, falling mortgage rates and tax credits for first-time buyers, which have collectively contributed to an increase in home sales. This should, in the long term, contribute to a slow but steady growth in the mortgage and real estate industry.

During the same period, the MBA’s refinancing gauge rose by 18 percent, as the number of applicants seeking to refinance loans rose to 66.3 percent of total applications from 65.3 percent, the highest since May this year. With mortgage rates falling below 5 percent, many applicants are finding refinancing to be an attractive option as they want to lock in the low rates before they start going back up again.

According to the MBA, the average rate for a 30-year fixed-rate mortgage, excluding fees, averaged 4.89 percent in the week ended October 2. During the three-week period that mortgage rates have fallen below five percent, refinancing demand went up by 38 percent. However, the fall in rates may be short-lived with the Federal Reserve’s recent announcement that it would slow down on purchases of mortgage-backed securities and agency debt, which may cause mortgage rates to climb back up again.

Considering this, refinancing may be a wise decision for many borrowers right now. At current rates, they can save on nearly $134 on monthly payments on a $200,000, 30-year fixed-rate loan.