According to the Mortgage Banker’s Association (MBA), mortgage applications are up 7 percent from the last recorded week, a seasonally adjusted rise of 4.7 percent.  There was also an increase in refinancing. Applications from homeowners seeking to redo their mortgages rose to 64 percent of all submissions, the most in a month and an increase from 62 percent the previous week.

Bank by Oliver Mokhlis for Mortgage Applications

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The MBA credits the increase to the drop in mortgage rates, which as of this writing are 4.26 percent for a 30-year fixed-rate mortgage, 3.31 percent for a 15-year fixed rate mortgage and 3.51 for a 5/1 adjustable-rate mortgage (ARM).

The rule of thumb is, when the economy heats up, interest rates rise. When it lags, rates dip.  Last week, the Dow Jones Industrial Average took its worst dive since 2011 losing more than 3.5 percent of its value. Losses continued on Monday, although as of this writing it has recovered .57 percent.

Orders for durable goods–products from hair dryers to SUVs, meant to last three years or more—unexpectedly dropped 4.3 percent in December, due to weak demand in a slew of areas from transportation and metal products to computers. The decline was the largest since July and reversed the 2.6 percent increase in November. The news dampened the buoyancy from previous positive reports on industrial production and consumer spending.

Still, consumer confidence reached a five-month high in January. The Conference Board stated that its index rose to 80.7 this month from 77.5 in December. January’s display of consumer confidence was the highest since August and showed that Americans are increasingly optimistic about the direction of their personal finances and business overall. Consumer confidence is a significant marker, because consumer spending powers 2/3 of the U.S. economy.

Tuesday, Standard & Poor’s Case-Shiller Index of home prices announced that, in 20 major cities, prices dipped in November by 0.1 percent. A separate 10-city index also fell by the same amount. The easing of prices is not a retreat from the recovery in the real estate market. In November, prices usually sag as people focus on the holidays and aren’t eager to move that time of year. In fact, November 2013’s price retreat was the slightest for any November since 2005.  Compared to the year before, Case-Shiller concluded that for the 20 major-city index, prices were up 13.8 percent and 13.7 percent in the next 10 cities. Home sale prices aren’t expected to increase as much this year, somewhere around 5 to 6 percent.

Why it’s a good time for mortgage applications

The fundamentals of the economy are good. It’s neither overheating nor stalling; it seems to be chugging along, one reason why the Dow backed off its retreat today. Homes typically sell for less in the winter. The best reason for acting now is this lag we’re seeing both in the rise in home prices and interest rates. Both are expected to increase this year.  If you’re ready to buy a home, this is when to begin the search.

Check out the best refinance rates for mortgages.

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