GoldPrice.

Mortgage rates have increased significantly thanks to a drop in interest rates last week with a 23.5% increase in applications for the week ending January 4 according to the Mortgage Bankers Association.

Key Takeaways

• Mortgage interest rates dropped from 4.48% to 4.74%, the lowest level since April, allowing homeowners waiting in the wings to apply for mortgages and enter the housing market. The increase in applications is the biggest in four years.
• Stock market volatility and the ongoing government shutdown could potentially impede the chances of some of the applications in closing.
• Application volume is still down 9% from this time last year.
• 10% of real estate agents surveyed by NAR state that the shutdown was impacting their clients

The MBA state’s that the seasonally-adjusted index on mortgage applications jumped to 362.7, the largest weekly increase since October 2015 and the highest index reading since last July.

The rate for 30-year fixed mortgages topped out in November at 5.17% with the US Federal Reserve indicating that it would proceed with its suggested rate hike policy – however, recent economic conditions have led the Fed to rethink its stance, with chairman Jerome Powell recently stating that the Fed would be patient with further rate hikes depending on economic conditions. The end-of-year stock market conditions for 2018 were the worst since the Great Depression.

MBA Data

The Refinance Index jumped 35% from the week before and the unadjusted Purchase Index increased by 59% in the same time period, 4% higher than the same week in 2018. Seasonally adjusted, the Purchase index jumped 17%.

The refinance share of mortgage activity saw an 11-month high and rose to 45.8% of total applications, up 42.7% from the week before. The adjustable-rate mortgage share of activity was 8.4% of all applications and the average loan size for refinance applications reached a survey high of $339,800.

The Federal Housing Administration share rose from 10% to 10.3%, the Veterans Affairs’ share rose from 11% to 11.6% (the highest since March 2017), and the Department of Agriculture share remained unchanged at 0.6%.

The rate for 30-year fixed mortgages with conforming loan balances of $484,350 or less decreased from 4.84% to 4.84% and the rate for those with jumbo loan balances of over $484,350 decreased from 4.72% to 4.52%. 

United States MBA Mortgage Applications up to 23.5% in January 4 from previous -8.5% https://t.co/7fmJGwPzTW pic.twitter.com/5m4cdPnic6

— FXCM (@FXCM) January 9, 2019

Expert Outlook

“Mortgage rates fell across the board last week and applications rebounded sharply, after what was a slower than usual holiday period,” MBA Associate Vice President of Economic and Industry Forecasting Joel Kan said. “The 30-year fixed-rate mortgage declined 10 basis points to 4.74%, the lowest since April 2018, and other loan types saw rate decreases of between 9 and 20 basis points.”

Kan added that “Purchase applications had their strongest week in a month, finishing over 4% higher than a year ago, as both conventional and government purchase activity bounced
back with solid gains after a sluggish holiday season.”

Market Reaction

Gold saw little reaction to the report, trading with a high of $1,291.41/oz and a low $1,280.24/oz.

The data nevertheless could have an impact on gold price action as lower interest rates long-term could stimulate the housing market and the economy overall if sustainable.