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An index of mortgage applications in the U.S. jumped 18 percent as refinancing rose to the highest level in a year and purchases increased for the first time in six weeks.

The gain in the Mortgage Bankers Association’s index in the week ended June 11 followed a 12.2 percent decrease the previous week. The Washington-based group’s refinancing gauge surged 21 percent while purchases rose 7.3 percent, halting a plunge that took the measure the prior week to the lowest level since 1997.

Financing requests by prospective homebuyers sank after a government tax credit worth as much as $8,000 expired in April, indicating the housing industry will take time to recover without assistance. Sales instead will depend on the magnitude of gains in employment and a deceleration in foreclosures.

“We’re kind of going from a government-aided recovery to a more sustainable recovery and it will take a while to make that switch,” Leif Thomsen, chief executive officer of Mortgage Master, a Walpole, Massachusetts-based lender, said in an interview before the report.

The share of applicants seeking to refinance a loan rose to 74.8 percent from 72.2 percent the prior week.

The average rate on a 30-year fixed loan increased to 4.82 percent from 4.81 percent the prior week. The rate reached a record low of 4.61 percent in March 2009 after the Federal Reserve expanded a mortgage-purchasing plan aimed at reducing borrowing costs. The program ended in March of this year.

At the current 30-year rate, monthly payments for each $100,000 of a loan would be about $525.87, compared with $567.79 a year ago, when the rate was 5.50 percent.

Mortgage Rates

The average rate on a 15-year fixed mortgage fell to 4.23 percent from 4.26 percent, and the rate on a one-year adjustable mortgage increased to 7.07 percent from 6.94 percent.

The tax credit for first-time homebuyers, which was extended in November to include some current owners, required contracts be signed by April 30 and settled by June 30.

Homebuilders are becoming more pessimistic as the lapse of the credit brought fewer potential buyers. The National Association of Home Builders/Wells Fargo Housing Market Index fell to 17 in June from 22 a month earlier. Readings below 50 signal more builders view the market as poor.

Hovnanian Enterprises Inc., the largest homebuilder in New Jersey, earlier this month reported a narrower loss for the fiscal second quarter as it reduced writedowns on land it owns. Orders for new homes fell 17 percent and contract signings in May were slower.

“The tax credit helped pull some sales forward,” Ara K. Hovnanian, chairman and chief executive officer, said in the statement. “We recognize that the expiration of the federal homebuyer tax credit, the lack of job growth and a potential increase in foreclosures all pose risks to a housing industry recovery.”

Source: businessweek.com

By Courtney Schlisserman