The volume of mortgage applications surged in the short week after the start of 2008, registering a 32 percent increase versus one week earlier. The Mortgage Bankers Association said its composite index of application activity was 706.0 for the week ended January 4, versus 553.9 one week earlier. Driving the jump in application activity was a strong increase in refinancing applications. The MBA said its refinance index increased 53.9 percent to 2494.2, up from 1620.9 the previous week; purchase applications also increased, jumping 14.7 percent to 414.0. Bloomberg reports that holiday volatility makes the MBA numbers unreliable to start the year:

The figures have in the past also been volatile during this time of year because the holidays make it difficult to adjust the data for seasonal variations, economists said. The index rose 17 percent in the first week of 2007 and 9.9 percent in the first week of 2006. “These numbers can be a little misleading at the end of the year,” Chris Rupkey, senior financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report.

Despite the strong jump to start the new year, the four week moving average for the seasonally-adjusted composite index continued to move down, the MBA said, declining 4.1 percent to 624.4 from 650.8. Declining mortgage rates may still have had at least some effect in bumping up refi activity, with the MBA reporting that average contract interest rates for a 30-year fixed-rate mortgage decreased to 5.73 percent from 6.05 percent, with an average of 1.10 points. For more information, visit http://www.mortgagebankers.org. (The application index is calibrated to March 16, 1990; so a reading of 706.0 means that application activity is a little more than 7 times greater than when the index was first established.)