Mortgages are cheap. Time to refinance

CNNMoney's 2015 Playbook: Housing
CNNMoney's 2015 Playbook: Housing

American homeowners are quickly fulfilling their New Year's Resolution to refinance their mortgages.

Mortgage applications rose nearly 50% last week, the strongest weekly gain since November 2008, according to the Mortgage Bankers Association, which tracks housing market data.

It's a closely watched metric because mortgage applications are a key indicator of not just the real estate market, but the overall U.S. economy, says Diane Swonk, chief economist at Mesirow Financial.

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"We're looking for housing to come back this year," Swonk says. "There's no other single change in the economy other than home buying that has such a large effect on spending."

Mortgage rates are at their lowest levels since May 2013. The rate on a 30-year fixed rate mortgage was down to 3.86% in December from 4% in November, and 4.46% a year ago, according to Freddie Mac.

Many homeowners rushed to refinance at these rates. People refinancing their mortgages made up over two-thirds of last week's application surge, MBA reported.

Rates are dropping because of low inflation, a strong U.S. dollar and lackluster housing demand over the holidays, Swonk says.

Related: FHA to lower cost of mortgage insurance

The low rates are also creating more jobs. Home-building employment increased 7% in December from a year ago. Home-building employment peaked last year in September at 677,500 jobs, the highest number since the recession ended, according to the Federal Reserve Bank of St. Louis. Still, home construction jobs are far below their 2006 high.

Looking ahead, Swonk sees 2015 as the year that many Millennials, long stuck with poor job prospects, will become home buyers.

"We are at a tipping point where we're finally going to see some of those Millennials leave their parents' homes, grow some wings and leave the nest," Swonk says. "They'll either rent or buy, but the arbitrage is really to buy."

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