U.S. MBA's Mortgage Applications Index Fell 6.6% Last Week
U.S. MBA's Mortgage Applications Index Fell 6.6% Last Week
Sept. 28 (Bloomberg) -- U.S. mortgage applications fell last week to the lowest in four months, reflecting a drop in refinancing and a second straight decline in applications to purchase homes, a private report showed.
The Mortgage Bankers Association's applications index fell 6.6 percent to 721.2 from 772.2 a week earlier, the group said today in Washington. Applications to purchase homes fell 3.4 percent to 483.1, while filings for loans to refinance mortgages dropped 10.5 percent to 2106.6.
Mortgage rates rose to 5.85 percent from 5.81 percent a week earlier. While borrowing costs are still within a percentage point of an all-time low, the combination of rising interest rates and record home prices may start to put homes out of reach for more buyers, slowing sales in coming months, economists said.
``The demand for housing remains strong but is no longer robust,'' said Steven Wood, president of Insight Economics LLC in Danville, California, before the report. ``Housing activity has been contributing strongly to economic growth in recent years. Slower sales will lead to slower construction, which will reduce housing's positive contribution to economic growth.''
One-Year ARM Tops 5%
The rate on the 15-year mortgage rose to 5.44 percent from 5.38 percent, while the rate on a one-year adjustable mortgage increased to 5.02 percent from 4.94 percent, according to the association. That was the first time the one-year ARM was above 5 percent since April 2002.
At the current reported rate, borrowing costs for each $100,000 of a loan would be $589.94 a month. That compares with $536.21 when rates were at a 40-year low of 4.99 percent in June 2003.
Federal Reserve Chairman Alan Greenspan said speculative buying may be driving housing prices and creating a risk to the U.S. economy because so many Americans rely on home appreciation to support their spending.
The Fed has raised the benchmark short-term lending rate 11 times since June 2004 to 3.75 percent. The yield on the benchmark 10-year note has risen from 4 percent at the end of last month to 4.28 percent yesterday on concern that economic growth and higher energy prices will stoke inflation.
``With the Federal Reserve continuing to remove monetary policy accommodation and as long-term interest rates gradually ratchet upward, we expect to see housing demand flatten,'' said Gary Bigg, an economist at Banc of America Securities LLC in New York.
Other Signs
The Mortgage Bankers index is the second report in as many days to suggest that the housing market may be starting to cool. U.S. new home sales in August fell by the most since November, the Commerce Department said yesterday.
Still, home sales are on pace to set a record this year, and mortgage rates may stay low enough next year to help push U.S. home sales to the second highest, the National Association of Realtors said on Sept. 13.
Sales of existing houses and condominiums likely will total 6.8 million, a drop of 3 percent from a record 7.02 million this year, the industry's largest trade group said Sept. 13. Sales of new houses probably will be 1.22 million, compared with a record 1.28 million in 2005.
U.S. sales of previously owned homes unexpectedly surged in August, and prices reached an all-time high, the Realtors group said this week.
To contact the reporter on this story: Joe Richter in Washington Jrichter1@bloomberg.net
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