Mortgage Applications Skyrocket to a Near-Record

U.S. applications for loans to buy homes jumped last week to their second-highest level on record even as borrowing costs climbed, the Mortgage Bankers Assn. of America said.

The association’s purchase index rose 14% to 341.2 in the week ended May 5 from 299.4 a week earlier. The new reading was second only to the 343.10 in the week ended Oct. 10, 1998.

The increase in purchase applications drove a 12.7% rise in the mortgage applications index, which also includes refinancings. The overall index rose to 343.6 last week from 304.8 a week earlier for the highest reading since early July.

“There are still a lot of buyers out there,” said Phil Grisdela, vice president of Chase Manhattan Mortgage Corp. in Dulles, Va. “The rise in rates is not stopping this.”

Would-be borrowers have yet to be discouraged because the nation’s unemployment rate stands at a 30-year low of 3.9% and incomes are rising, analysts said.

Buyers also are optimistic about the ability to refinance should rates drop.

“As long as home buyers have the cash to make a down payment and figure they can make the payments for a few years, they can anticipate lower rates will eventually reduce their cost,” said Christopher Low, chief economist at First Tennessee Capital Markets in New York.

The contract rate on a 30-year, fixed-rate mortgage rose 13 basis points to 8.48% last week, the association reported. That was the highest since 8.50% in the week ended April 7, 1995.

The average rate on a one-year adjustable mortgage, pegged to the one-year constant-maturity Treasury index, rose to 7.37% from the prior week’s 7.16%. Adjustable mortgages accounted for 25.2% of the mortgage market last week, up from 23.7% the previous week.