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Falling mortgage rates spur surge in home loan applications

Mortgage rate decline, which has defied forecasts, could continue

Mortgage rates keep falling, and that has borrowers rushing to close a deal.

Applications for home loans soared 49% for the week ended Jan. 9, according to the Mortgage Bankers Assn., the largest pop since 2008. The jump from a week earlier came from a 66% increase in refinances, and a 24% gain in purchase applications.

And the surge could continue. Mortgage finance giant Freddie Mac said lenders on average were offering a 30-year fixed loan at 3.66% last week, compared with 3.73% a week earlier, and 4.41% from the same time last year.

"Our business is exploding," said Jeff Lazerson, president of the Mortgage Grader brokerage in Laguna Niguel. "We can't write deals fast enough."

The mortgage rate decline has defied forecasts. The average on a 30-year fixed loan ended 2014 at 3.87%, a far cry from the 5% many experts predicted. Concerns over slowing economies overseas have caused investors to rush into safer U.S. Treasury securities and government-backed mortgage bonds, which has put downward pressure on mortgage rates.

The rates over the last two weeks were the lowest since May 2013, when they started to rise and choked off a refinance boom. The latest drop in rates has led to a boom in applications once again, local mortgage professionals say. Two weeks ago — the latest data available — the volume of applications was the most since August 2013.

"A lot of people who refinanced in the past year are calling again," said Richard T. Cirelli, head of RTC Mortgage Corp. in Laguna Beach. "So far it looks like a very good year for people refinancing, as well as people that are buying."

Given the weakness in global economies, mortgage rates are likely to stay low for the near future, said Stuart Gabriel, director of UCLA's Ziman Center for Real Estate. That should help spur home sales by making housing more affordable, he said.

"There is very low probability of rising mortgage rates in the very near future," he said.

Many industry leaders, including the Mortgage Bankers Assn., have predicted rates on a 30-year-fixed loan to climb to about 5% by the end of 2015 as the U.S. economy improves and the Federal Reserve makes an expected increase to its short-term interest rates.

However, those predictions came before the most recent drop-off in mortgage rates amid increasing concerns with economies abroad. Although the U.S. economy appears to be strengthening, Asia and Europe have been struggling with lackluster growth.

"It is very difficult to conjure up a scenario of 5% any time this calendar year," Gabriel said.

But as the U.S. economy improves, rates could trend higher, though not significantly, said Keith Gumbinger, vice president of HSH.com, which tracks mortgage rates.

"We started 2014 in the 4.6% range. It may be a struggle to even get to that level this year," he said.

But even if rates stay low, it's uncertain if there will be a continued surge in applications.

Guy Cecala, publisher of Inside Mortgage Finance, said many homeowners have already refinanced in recent years, limiting the number of people who would benefit from low rates. He added that low rates don't spur purchases as much as other factors, such as income or wage growth.

"I don't think there is any question it's going to spur refinance and home purchase activity," he said. "It's just a question of how much."

In December, the nation posted solid job growth, making 2014 the best year for hiring since 1999. However, wage growth — a stubbornly lacking part of the economic recovery — was missing. Average hourly earnings for all private-sector workers fell 5 cents from November.

For now, however, borrowers are looking to take advantage of low rates that many thought were history.

One of those is Gary Lynch.

The 33-year-old utility worker started looking for a house in December after a hiatus of several months, in large part because of the cheaper cost of borrowing. He said he now feels a sense of urgency and had planned a busy Saturday with his wife in the Temecula area, where he lives.

"We are going to be looking at 30 different houses," he said.

andrew.khouri@latimes.com

Twitter: @khouriandrew

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