MBA: Refinance applications surge again -- and some mortgage rate history

The recent drop in mortgage rates has clearly spurred homeowners to action. Many are trying to refinance their loans to take advantage of interest rates that have fallen to modern lows. The Mortgage Bankers Association's refinance application index jumped 62.6% in the week of December 19 to 6758.6 from 4156. That's the highest level since July 2003, in the midst of the last deflation scare (the chart above shows the entire history of the series, which dates back to 1990). The purchase application index rose a much more modest 10.6% to 316.5 from 286.1.

This continues the recent trend of lower rates spurring a big increase in refinancing activity, but a much more modest rise in home buying. That makes sense when you think about it. Refinancing to lower your monthly payments and interest rate is a no-brainer if you're going to be in the house long enough to recoup the up-front cost of the transaction. But buying a house is a much different financial commitment -- one Americans aren't willing to make if they lack confidence that home prices will hold up and if they're afraid of losing their jobs.

Incidentally, Freddie Mac's 30-year rate average was 5.19% in the most recent week. That was the lowest the company has found since it started conducting its primary mortgage market survey in 1971. The book A History of Interest Rates by Sidney Homer and Richard Sylla has some mortgage rate data going back much farther than that. If you use the book's Manhattan/HUD annual average 30-year rate as your benchmark, you can't find a rate below 5.19% going all the way back to 1955 (5.18%). The lowest annual rate average this century? 4.7% in 1945.