U.S. MBA's Mortgage Applications Index Fell 1.6% Last Week
Sept. 3 (Bloomberg) -- An index of applications for U.S. mortgages fell for the fourth straight week to the lowest in more than a year as rising mortgage rates discouraged refinancing, an industry report showed.
The Mortgage Bankers Association of America's measure of mortgage applications dropped 1.6 percent to 628.7 last week, the lowest since June 14, 2002. The refinancing index declined 8.6 percent to 1981.5. The average 30-year fixed-rate mortgage increased to 6.25 percent from 6.22 percent, up from a record low of 4.99 percent in the week ended June 13.
Interest rates have been rising amid signs of faster economic growth. That's pinched refinancing, a source of cash for consumers for more than two years. Home sales may start to ebb later this year as higher borrowing costs make housing less affordable, some economists said.
Fewer mortgage applications are ``telling us that while housing activity, and all the indirect effects surrounding, may well remain at a high level, the pace is likely to slow materially in coming months,'' said David Rosenberg, chief North American economist at Merrill Lynch & Co., before the report.
The refinancing gauge has declined 80 percent since reaching an all-time high at the end of May, the biggest three-month drop since record-keeping began in 1990. Home buying often spurs purchases of furniture and appliances.
The Washington-based mortgage group's purchase index increased 5.5 percent to 396.1 from 375.5. A record of 460.5 was set in the final week of May.
Refinancing
Mortgage rates are typically pegged to long-term securities such as 10-year Treasury notes, whose yields have risen because investors predict a stronger economy. ``The sharp backup in rates has dramatically slowed refinancing activity,'' said Merrill Lynch economist Kathy Bostjancic.
The current borrowing costs under a 30-year fixed-rate mortgage put the average monthly payment on a $100,000 loan, including principal and interest, at $615.72. That compares with $598.91 a year ago, when the rate was 5.99 percent.
Fannie Mae and Freddie Mac, the two largest sources of mortgage financing, forecast that refinancing would fall by at least half in 2004. Refinancing volume will drop to about $850 billion from $2.6 trillion this year, according to Fannie Mae. Freddie Mac said refinancing will decline to $1.18 trillion from $2.44 trillion.
Home prices, which appreciated by as much as 8.3 percent during the real estate boom the past five years, may rise at a slower pace the next several quarters, economists said.
U.S. home prices increased 5.6 percent in the second quarter from the year-earlier period, the slowest pace in four years, according to the Office of Federal Housing Enterprise Oversight, the Washington-based agency that oversees Fannie Mae and Freddie Mac.
``This current trend in home prices, if it continues over the next few quarters, indicates a gradual and orderly return to the historic average, rather than the bursting of a price bubble,'' said Armando Falcon Jr., agency director, said in a statement.
The rate compares with a gain of 7 percent in the first quarter, the agency said. Housing price appreciation was last slower in the third quarter of 1999.
Last Updated: September 3, 2003 07:00 EDT |
