WASHINGTON -- U.S. mortgage applications increased for the second time in three weeks, reflecting the biggest rise in home purchases since January, an industry report showed today.
The Washington-based Mortgage Bankers Association said its gauge of mortgage applications rose 6.1 percent to 683.6 in the week that ended April 8 from 644.5. The group's purchase index jumped 6.4 percent to 474.5 from 446, the biggest percentage gain since the week ended Jan. 14.
Forecasts for higher mortgage costs as the Federal Reserve keeps raising its benchmark interest rate may be encouraging prospective buyers to purchase now, economists said. The average rate on a 30-year fixed mortgage rose to 5.95 percent from 5.91 percent, and is up almost half a percentage point from an 11-month low in the first week of February.
"The MBA purchase index has held up remarkably well in the face of rising borrowing costs, perhaps due to a rush by potential homebuyers to lock in a low rate before costs move higher," said Stephen Stanley, chief economist at RBS Greenwich Capital in Greenwich, Conn.
The mortgage bankers group's gauge of applications to refinance existing mortgages rose 5.6 percent to 1,899.6 from 1,798.8 the previous week.
At last week's average 30-year mortgage rate, borrowing costs for every $100,000 of a loan would be $596.34 a month. That compares with $536.21 when the rate was at an all-time low of 4.99 percent in June 2003.
A report last week showed still-strong housing demand. Contracts to purchase previously owned homes rose 2.2 percent in February, the National Association of Realtors said in an April 4 report. The Realtors group launched its pending resales index last month as a leading indicator for the U.S. housing market.
Housing "remains on solid ground for now," said Michael Moran, chief economist at Daiwa Securities America Inc. in New York. The pending sales report "suggests that activity will not falter in the near term."
Fort Worth, Texas-based D.R. Horton Inc. (NYSE: DHI), the second-largest U.S. homebuilder by stock market value, said orders in the quarter ended March 31 increased 23 percent as sales climbed in all of its regions.
Strong demand and a record backlog put the company in line for another year of record sales, Chairman Donald Horton said in an April 7 statement. The company's fiscal year ends in September.
Rising borrowing costs and a jump in sales this year that has helped satiate demand may point to slowing sales later this year, economists said.
Federal Reserve policy makers raised their benchmark interest rate a quarter point to 2.75 percent on March 22, the seventh such increase since June. The Fed's Open Market Committee concluded pricing risks were "now tilted a little to the upside" and the "required amount of cumulative tightening may have increased," according to meeting minutes released yesterday in Washington.
"The outlook is that the Federal Reserve is going to continue to raise short-term interest rates, and there's a lot of concern about inflation," said Greg McBride, an analyst at Bankrate Inc. in North Palm Beach, Fla., in an interview last week. "It's that inflation concern and the outlook for higher interest rates down the road that is the impetus for pushing mortgage rates higher."
Home sales may slow this year to 7.766 million from a record 7.986 million in 2004, according to the National Association of Realtors.
The mortgage bankers' survey covers approximately 50 percent of all retail residential mortgage originations and has been conducted weekly since 1990. The base period is March 16, 1990, when the value for all indexes was 100.