Soaring mortgage applications are usually an indication of a strong economy, but the recent bump in volume could actually signal that problems are ahead.
On Wednesday, the Mortgage Bankers Association reported that total U.S. mortgage application volumes jumped 8.4% from the previous week on a seasonally adjusted basis. The refinance share of mortgage activity remained unchanged at 49% of total applications from the previous week. The adjustable-rate mortgage (ARM) share of activity increased to 6.3 % of total applications. (Source: Mortgage Bankers Association, June 10, 2015.)
At first glance, rising house prices and the surge in purchase applications would seem to be great news. However, the move could suggest that home buyers fear the interest rate hike and are rushing to buy homes.
Earlier in 2015, the Federal Reserve hinted that it would raise the federal funds rate this year.
“If the economy continues to improve as I expect,” Federal Reserve Chair Janet Yellen told the Providence Chamber of Commerce early this year, “I think it will be appropriate at some point this year to take the initial step to raise the federal funds rate target.” (Source: Federal Reserve, last accessed June 10, 2015.)
While the Fed didn’t give a specific time frame, many analysts thought it could happen as early as June. With a raft of weak economic data rolling in, most now believe it will happen in September.
Higher interest rates could take the wind out of the housing market’s sails, zapping a homebuyer’s purchasing power. As a consequence, industry experts are worried housing demand could slow down.
Higher mortgage applications may, therefore, not be a sign of an economic rebound, but rather homebuyers simply trying to time the Federal Reserve’s next rate hike.
Also Read: Mortgage Rates Will See Similar Hike