Housing Market Welcomes Lower Interest Rates With Open Arms

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Amid a worse-than-expected employment report, mortgage applications, and refinancing activity climbed higher as interest rates retreated. For the week ended January 10, 2014, applications for home loans surged 11.9 percent on a seasonally adjusted basis from one week earlier, according to data from the Mortgage Bankers Association.

There have only been a handful of increases over the past eight months as the housing market is starting to return to a more sustainable pace, but the Refinance Index also jumped 11 percent from the previous week. Meanwhile, the Purchase Index gained 12 percent to return to mid-November 2013 levels.

Overall, the refinance share of mortgage activity accounted for 62 percent of total applications, compared to 63 percent a week earlier. Interest rates have been moving higher in recent months, but a disappointing jobs report last Friday 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 4.72 percent to 4.66 percent. Meanwhile, the average rate for a 15-year fixed-rate mortgage fell from 3.77 percent to 3.72 percent. Looking ahead, Zillow expects mortgage rates to exceed 5 percent for the first time since early 2010 this year.

Despite the upbeat mortgage report, two of the nation’s most well-known banks recently issued a warning signal to the housing industry. Wells Fargo (NYSE:WFC), the largest home lender in the country, said 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), the nation’s second largest home lender, also reported a sharp contraction in mortgage activity. In the fourth-quarter, lower mortgage fees and related income drove non-interest revenue down by 17 percent compared to a year earlier. JPMorgan also said mortgage originations plunged 54 percent year-over-year to $23.3 billion. Meanwhile, Bank of America (NYSE:BAC) witnessed a 46-percent plunge in mortgage originations during the quarter.

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