According to the Mortgage Bankers Association, the demand for mortgage loans increased to a seven-month high last week as consumers rushed to get federal homebuyer tax credits that ended April 30th.  Home loan applications jumped 13% in the week ended April 30th to the highest level since early October, overshadowing a 2.1% drop in home refinancing demand.  Total mortgage loan applications rose by a seasonally adjusted 4 %, the trade group reported.  It was the third straight weekly increase in purchase applications, rising almost 24% in the month. MBA said the share of mortgage refinancing fell to 51.9% of all applications, the lowest since early July 2009.

The thirty-year mortgage rates dropped 0.06 percentage point to 5.02 %, the lowest rate since mid-March.  Eligible borrowers seeking to take advantage of federal tax credits of $8,000 for first-time buyers and $6,500 for existing homeowners were required to sign contracts by last Friday and to close on their mortgage loans by June 30^th.  The big question now is whether the U.S. housing market has enough traction to continue recovering without government help. 

In addition to the tax credit, the Federal Reserve bought more than $1.4 trillion mortgage-backed securities intended to keep home loan rates down to revive the housing market. That program ended on March 31. “All the data that we’ve seen recently point to the fact that consumers are in a better place today than they were six months ago, and because of that they will likely be more active in the housing market,” Schenk said. The difficult labor market, however, will keep the housing recovery slow, he added.

Housing demand will likely falter after the recent influx of home sales ahead of the tax credit expiration, but then mount a slow upturn, many industry experts expect.  New home sales rose almost 27% in March, and sales of existing home increased by 6.8%.  According to UBS economists, “The pending home sales index, based on initial contracts, will likely be boosted again in April, with some payback thereafter. “However, we believe the combination of low prices, still relatively low mortgage refinance rates and the nascent recovery in employment will support home sales later in the year.”

The latest unemployment figures will be reported on Friday. April’s rate is seen holding at 9.7% for a fourth straight month, based on a Reuters poll, after touching a more than 26-year peak over 10% last year.  Homeowners have increasingly turned to the government for home financing with programs like FHA home loans.  These FHA loan programs including low down-payment home loan  products from FHA.  The MBA said that more than one-half of all purchase applications last week were for government mortgage loans, the highest share in two decades.

Prime credit borrowers are really taking advantage of their leverage in this market as no cost mortgage refinancing has become very popular with people who have ficos that exceed the 720 range.  It is important that you do the math on these no cost loans, because the interest rate is typically higher so you need to make sure it makes sense financially to payt a higher rate in an effort to eliminate closing costs.