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.