Lower Interest Rates Help Housing Market Shake Off Government Shutdown

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With interest rates falling to their lowest level in almost five months, mortgage applications managed to climb last week and appear set to place any effects from the government shutdown in the rear-view mirror.

According to the Mortgage Bankers Association’s latest report, for the week ended October 25, loan applications jumped 6.4 percent on a seasonally-adjusted basis from one week earlier — the 8th gain in 25 weeks. That followed a drop of 0.6 percent in the previous week. The figure includes both refinancing and home purchase demand and covers more than 75 percent of all domestic retail residential mortgage applications.

The industry group’s refinance index surged 9 percent from a week earlier. Overall, the refinance share of mortgage activity accounted for 67 percent of total applications, which is 2 percent higher from a week earlier and 10 percent above its lowest level since April 2010. The unadjusted purchase index gained 2 percent, but has now been below year-ago levels for five consecutive weeks.

The average interest rate for a 30-year fixed-rate mortgage decreased from 4.39 percent to 4.33 percent, the lowest rate since June. The most recent average rate for a 15-year fixed-rate mortgage came in at 3.42 percent, compared to 3.51 percent the week before.

Although interest rates have been declining in recent months, housing affordability is low and expected to get worse due. “Affordability has fallen to a five-year low as home price increases easily outpaced income growth,” recently explained Lawrence Yun, the National Association of Realtors’ chief economist. “Expected rising mortgage interest rates will further lower affordability in upcoming months. Next month, we may see some delays associated with the government shutdown.”

In morning trading, shares of Home Depot (NYSE:HD) and Lowe’s (NYSE:LOW) traded relatively flat. Meanwhile, home builders Lennar (NYSE:LEN), PulteGroup (NYSE:PHM), KB Home (NYSE:KBH), and D.R. Horton (NYSE:DHI) all fell more than 1 percent.

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