U.S. home purchasing slows on unemployment concerns
Wednesday September 4, 4:22 pm ET
biz.yahoo.com
By Dan Wilchins
(Recasts, adds economist comment)
NEW YORK, Sept 4 (Reuters) - U.S. home purchasing is showing signs of slowing after growing for much of the year as flat income growth and concern about unemployment limit the number of consumers tempted by record low mortgage rates, economists said.
ADVERTISEMENT
Low borrowing rates this year have helped the U.S. housing sector to stay robust, providing crucial support to an economy recovering from recession.
Applications for mortgages have risen since April, but have been more or less steady since July, according to the Mortgage Bankers Association of America.
The MBA said on Wednesday that its weekly barometer of applications for mortgages to buy homes rose 4.4 percent last week, but at 359.7, was only just above average for the year.
In contrast, the MBA's refinancing index was near a record.
"There's a limit to how many home buyers can be brought into the market by lower rates," said Doug Duncan, chief economist at the MBA in Washington, D.C.
As long as home buying stays near current strong levels, consumer spending will not likely suffer, economists said. Consumer spending, which accounts for about two-thirds of U.S. economic activity, has been an important source of strength as spending in other sectors has slowed.
But if consumers grow deeply concerned about the economy, home buying slows substantially and home prices decline, consumer spending likely would suffer, even if rates have declined, said Rick MacDonald, a senior economist at MMS International in Los Angeles.
Declining prices could also cut down on refinancing activity, because fewer borrowers will be able to take equity out of their homes, Duncan said.
Neither MacDonald nor Duncan view that scenario as likely, but as possible.
DON'T CRY YET
There still is encouraging news when it comes to consumer spending. Refinancing, which will be strong as long as rates keep dropping, is allowing consumers to pull equity out of their homes or lower their monthly payments.
Plus, consumers are still spending on cars -- DaimlerChrysler AG <DCX.N DCXGn.DE>, for example, on Wednesday said its Chrysler unit sold 23.6 percent more cars and light trucks in the United States last month vs. the same month last year.
Strong car sales could offset any weakness in slowdowns in home purchasing, MacDonald said.
The rate for a 30-year home loan, the most popular mortgage in the United States, fell to 5.99 percent last week from the previous week's 6.16 percent, according to the MBA.
That is the lowest 30-year rate ever recorded for the MBA's weekly survey, which began in 1990. The previous record was 6.13 percent, for the week ending Aug. 9.
Refinancing fell 4.2 percent for the week, but at 5,129.6, was more than double the average so far this year.
Last week's decline was likely because some consumers are waiting to see if rates fall even lower, the MBA's Duncan said.
The MBA's index of overall mortgage market activity fell 1.9 percent to 1,059.5, well above the average index level of about 679 for the year so far. |
