Mortgage application volume experienced the largest week-over-week gain in more than six years, the Mortgage Bankers Association said Wednesday.

The surge in app volume comes on the heels of last week's announcement of a half-percentage-point reduction in the FHA's annual premium. However, applications for conventional loans saw a larger increase in weekly volume than the government loans that would benefit from the news.

The MBA's market composite index was up 49.1% on a seasonally adjusted basis for the period ending Jan. 9. Loan application volume has not been this high since November 2008, the Washington-based trade group said.

Refinance activity rose 66% from the prior week, which represents the highest level since July 2013. Meanwhile, the purchase index soared 24% week-over-week, reaching its highest mark in 15 months.

Even though there was a week-over-week adjustment for the New Year's Day holiday, activity volume likely elevated due to mortgage rates that decreased to their lowest level since May 2013. The average contract interest rate for 30-year fixed mortgages with conforming loan balances below $417,000 declined 12 basis points, to 3.89%. Interest rates for 30-year jumbo loans above $417,000 averaged 3.88%, down 11 basis points. FHA-backed 30-year fixed rate mortgages weakened 10 basis points, to 3.71%. Lastly, the average contract interest rate for 15-year fixed rate mortgages deteriorated eight basis points, to 3.24%.

"The pattern of flows from our own data lines up with the MBA survey," Doug Duncan, chief economist for Fannie Mae, said in a phone interview. "We see flat rates for most of the year, which will help housing. Rates could go up gradually, but if they go up faster than the pace in which real incomes rise, then we will see a slowdown in housing."

The FHA share of total applications fell to 7.5%, compared to 9.3% the previous week and the Veterans Affairs portion of total mortgage loan volume dropped one percentage point, to 9.7%. The refinance share of overall mortgage activity accounted for 71% of total applications, up from 65% last week.

Applications for larger refinance loans were more than four times greater than the previous week, said MBA's Chief Economist Mike Fratantoni. For example, the average conventional refinance application was up to $298,700 from $233,500 the previous week.

"Although there was a somewhat smaller increase for government refinance volume, VA refinance applications increased by 50%. VA loans tend to be larger than FHA and USDA loans, and hence are more responsive to a given rate change," Fratantoni said.

"Purchase application volume increased across most loan size categories, particularly for the conforming, middle of the market loan segments that had been weak for much of the past year," Fratantoni continued. "FHA purchase application volume was up by 17% for the week on a seasonally adjusted basis."

Even though there seems to be positive news for the housing market due to an improving job market and evidence of mortgage credit availability increasing, Duncan is pessimistic that 2015 will be a breakout year.

"Our theme for 2015 is the economy drags housing upward," Duncan said. "This means that as income grows, you'll see housing improve, but it's not leading the way. Millennials need to get jobs that produce strong income gains and encourage them that they can stay in place for a while and not move around to advantage their job opportunities."

"You'll also have to see Generation X'ers continue to strengthen the move-up market because boomers are peaking and will begin to slow in their contribution. We see a relative modest growth path for a few years," he added.

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