The Federal Reserve’s recent decision to keep the U.S. economy on track by buying longer-term Treasury notes already appears to have garnered at least one positive effect: the rate at which homeowners are refinancing their mortgages.
In the week following the Federal Open Market Committee’s decision to buy Treasuries–thus joining eager bond buyers who have already pushed interest rates lower–mortgage refinancings are at their highest level since May 2009. The FOMC announced August 10 that it will use the proceeds from its massive mortgage-bond portfolio to buy long-term government debt.
The refinance index for the week ending August 13 jumped 17.1% from the previous week, the Mortgage Bankers Association (MBA) reported in its weekly mortgage applications survey.
The MBA also reported that the market composite index, a measure of overall mortgage loan application volume, increased 13.0% on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index increased 12.4% compared with the previous week.
However, the purchase index that tracks the demand for new residential mortgages was down, staying at its lowest level in more than a decade. The low level suggests that the U.S. housing market remains weak.
“The refinance share of mortgage activity increased to 81.4% of total applications from 78.1% the previous week, which is the highest refinance share observed since January 2009,” the MBA said. “The adjustable-rate mortgage (ARM) share of activity decreased to 5.7% from 5.9% of total applications from the previous week. “
The seasonally adjusted purchase index decreased 3.4% from one week earlier while the unadjusted purchase index decreased 4.6% compared with the previous week. It was 38.6% lower than the same week a year ago.