Housing Market Resumes This Downtrend

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Despite a slight improvement in interest rates, mortgage applications and refinancing activity declined in the latest update from the Mortgage Bankers Association. For the week ended January 24, 2014, applications for home loans decreased 0.2 percent on a seasonally adjusted basis from one week earlier.

On an unadjusted basis, mortgage applications plunged 9 percent from the prior week. There have only been a handful of increases over the past nine months as the housing market is starting to return to a more sustainable pace. The Refinance Index and Purchase Index both declined 2 percent from the previous week. Meanwhile, the unadjusted Purchase Index decreased 3 percent compared with the previous week and was 12 percent lower than the same week one year ago.

Overall, the refinance share of mortgage activity accounted for 62 percent of total applications, down from 64 percent a week earlier, which was the highest level in a month. Interest rates have rebounded higher in recent months, but a disappointing jobs report earlier this month could keep rates under control for the near future as the Federal Reserve maintains a loose monetary policy. In December, the U.S. economy added only 74,000 jobs, the smallest monthly gain in three years and a far cry from the 200,000 jobs estimated by economists.

The average interest rate for a 30-year fixed-rate mortgage decreased from 4.57 percent to 4.52 percent, which is the lowest rate since November 2013. Meanwhile, the average rate for a 15-year fixed-rate mortgage fell from 3.68 percent to 3.59 percent. Looking ahead, Zillow expects mortgage rates to exceed 5 percent for the first time since 2010 this year.

Although the housing market rebounded strongly in 2013, the nation’s largest home lenders recently issued a warning signal to the housing industry. Wells Fargo (NYSE:WFC) reported earlier this month that residential mortgage originations totaled just $50 billion in the fourth-quarter, the lowest amount since 2008 and down sharply from $80 billion and $112 billion in the previous two quarters. JPMorgan Chase (NYSE:JPM) also announced that mortgage originations plunged 54 percent year-over-year to $23.3 billion.

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