Rates Fail to Spur Mortgage Applications
Wed February 12, 2003 10:07 AM ET
By Dan Wilchins
reuters.com
NEW YORK (Reuters) - Record low mortgage rates last week failed to spur an increase in mortgage applications, probably because cold weather and concerns about Iraq made consumers less inclined to buy homes, a trade group said on Wednesday.
Cold weather likely kept consumers indoors, and uncertainty surrounding possible war in the Middle East may have made consumers less interested in making big-ticket purchases, said Doug Duncan, chief economist at the Mortgage Bankers Association of America.
Mortgage applications fell 5.1 percent in the week ended Feb. 7 on a seasonally adjusted basis, although to a level still high by historical standards, the MBA said.
The fall in applications was driven by a drop in applications for mortgages to purchase homes, and to a much lesser extent, a decline in applications to refinance mortgages.
These numbers could indicate the beginning of a slowdown in home buying. That could spell trouble for the economy, which has been supported in large part by the housing sector.
But the number of applications tends to fluctuate from week to week, and it's too soon to discern a trend, economists said.
"Calling the death of the housing market is premature," said Kurt Karl, chief economist for North America at Swiss Re in New York.
It could take a few weeks for lower rates to motivate consumers to buy or refinance, so applications could rise again, economists said.
Applications to buy homes fell to their lowest level since the week ending March 15, even as rates for the most popular home loan in the United States, the 30-year mortgage, fell 0.04 percentage point to 5.68 percent, the MBA said.
That's the lowest 30-year rate since the MBA began its weekly mortgage survey in 1990. The previous record low was 5.69 percent for the week ending Dec. 27.
The 15-year rate fell 0.08 percentage points to 5.09 percent. The record low for the 15-year rate, according to the MBA survey, is 5.05 percent, set in the week ending Dec. 27.
BALLAST FOR A FOUNDERING ECONOMY
The housing sector has provided crucial support to the economy. Record home sales and refinancing activity has kept consumer spending strong, even as other areas of the economy flagged.
"The ability to ... refinance, which has reduced debt service charges for the American homeowner, but also the very large ... borrowing over and above just refinancing the mortgage, has been a very important issue in financing consumers," Federal Reserve Chairman Alan Greenspan told a Senate Banking Committee on Tuesday.
So far, the housing market is showing few signs of letting up. Countrywide Financial Corp., one of the largest mortgage lenders in the U.S., said on Tuesday that on average it received applications for $2 billion of loans in January, up 111 percent from January 2002.
Residential construction spending set a record in December of $434.6 billion, the Commerce Department said at the beginning of the month.
Some economists reckon that this year could be even stronger for the housing sector.
Mortgage rates and unemployment are low, personal income is rising, and real estate looks like a good investment when the stock market is tanking, all of which could spur even stronger home sales in 2003, said Brian Wesbury, chief economist at investment bank Griffin, Kubik, Stephens & Thompson Inc. in Chicago on Tuesday.
A war with Iraq could cut into housing demand for a month or two as consumers focus on the conflict, but the effect would likely be temporary, said Carl Steidtmann, economist at Deloitte Research in New York.
The MBA's index of mortgage applications dropped to 1,083.1, its lowest level since the week ending Dec. 27, but still above last year's average of about 800.
The MBA's barometer of applications for mortgages to purchase homes fell 11.4 percent to 328.8, its lowest level since the week of March 15, when it stood at 310.9.
The number of refinancing applications fell 2.7 percent last week, bringing the MBA's refinancing barometer to 5,470.3, which is still over 50 percent above its weekly average for 2002, a record breaking year for refinancing.
Refinancing applications may have declined because consumers are waiting for rates to go lower, the MBA's Duncan said. |
