Demand for loans to buy U.S. homes raced to a seven-month high last week in the final hurrah for federal homebuyer tax credits that ended April 30, Mortgage Bankers Association data showed on Wednesday.
Home purchase loan applications jumped 13 percent to the highest level since early October in the week ended April 30, overshadowing a 2.1 percent drop in refinancing demand.
Total mortgage applications rose by a seasonally adjusted 4 percent, the trade group reported. It was the third straight weekly increase in purchase applications, rising almost 24 percent in the month.
The share of loan refinancing fell to 51.9 percent of all applications, the lowest since early July 2009, the MBA said.
Average 30-year mortgage rates dipped 0.06 percentage point to 5.02 percent, 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 must close on their loans by June 30.
The big question now is whether the U.S. housing market has enough traction to continue recovering without government help.
"The need for further stimulus is not so obvious any more, we don't think it's needed because we've gotten through the thick of it and we're at the point where markets will take care of themselves," said Mike Schenk, senior economist for the Credit Union National Association in Madison, Wis.
In addition to the tax credit, the Federal Reserve bought more than $1.4 trillion mortgage-related securities aiming to keep mortgage 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 is likely to drop off after the recent flurry of sales ahead of the tax credit expiration, but then mount a slow upturn, most industry experts expect.
Sales of new homes jumped almost 27 percent in March, and sales of existing home increased by 6.8 percent.
The number of previously owned homes in contract to be sold, known as pending home sales, rose 5.3 percent to a five-month high in March.
"The pending home sales index, based on initial contracts, will likely be boosted again in April, with some payback thereafter," UBS economists wrote. "However, we believe the combination of low prices, still relatively low mortgage 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 percent for a fourth straight month, based on a Reuters poll, after touching a more than 26-year peak over 10 percent last year.
Homeowners have increasingly turned to the government for their mortgages, including low down-payment products from the Federal Housing Administration.
More than half of all purchase applications last week were for government loans, the highest share in two decades, the Mortgage Bankers Association said.
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