U.S. applications for mortgage loans rose last week as mortgage rates dropped and economists expect new lows in borrowing costs to spur more requests for loans to refinance mortgages and buy homes in coming weeks.
The Mortgage Bankers Association said its market index, a measure of weekly mortgage activity, rose 1.2 percent to 889.1 in the week ended March 5.
At the same time, the trade group's purchase index, a gauge of new requests for loans to buy homes, rose 1.4 percent to 428.6.
"It is only a taste of what is to come," said Chris Low, chief economist at FTN Financial in New York on Tuesday before the report was released. "If rates stay where they are now, March (mortgage lending) will blow February's out of the water."
The MBA's refinancing index, a gauge of demand for home loan refinancings, rose 1.0 percent to 3,567.6 from the previous week's 3,532.2 as 30-year mortgage rates fell to 5.34 percent last week from 5.49 percent in the Feb. 27 week.
Refinancings accounted for over 50 percent of last week's loan applications and last week's pace of refinancings were at their highest level since the week ended Aug. 1, 2003 when refinancing index hit 4,047.5 and mortgage rates averaged 6.37 percent.
Mortgage rates have fallen in tandem with U.S. interest rates as economic data showing slower-than-expected job growth in the U.S. has nibbled away at consumer confidence. Declining consumer confidence does not necessarily mean home sales will be affected.
"What we have seen in the last couple of years is that home sales have weathered the weakness in confidence incredibly well," said FTN's Low.
Treasury 10-year yields, a proxy for mortgage rates, were at 3.74 percent on Wednesday, down from just over 4 percent before the U.S. government announced a paltry 21,000 jobs were created in February.
The low borrowing costs also are expected to support consumer spending on goods and services because a rise in home values in recent years and lower rates have spurred "cash out" refinancings that help home owners squeeze equity out of their homes, said Low.
