UPDATE 1-U.S. home loan demand drops despite drop in rates

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By Julie Haviv

NEW YORK, Feb 10 (BestGrowthStock) – U.S. mortgage applications
dipped last week, reflecting reduced demand for home purchase
loans even as rates on 30-year loans fell to their lowest since
December, an industry group said on Wednesday.

The Mortgage Bankers Association’s (MBA) seasonally
adjusted index of mortgage applications (USMGM=ECI: ), which
includes both purchase and refinance loans, decreased 1.2
percent for the week ended Feb. 5.

The MBA said rates on 30-year fixed-rate mortgages, the
most widely used loan, fell below 5 percent for the first time
since the week ended Dec. 18. Low mortgage rates fueled a
slight uptick in demand for home refinancing loans last week,
with activity reaching its highest level since the week ended
Dec. 11.

A continuation of lackluster demand for home purchase loans
would not bode well for the U.S. housing market, which remains
highly vulnerable to setbacks and heavily reliant on government
intervention.

The four-week moving average of mortgage applications,
which smooths the volatile weekly figures, was up 3.8 percent.

The lowest mortgage rates in decades and high affordability
has helped the hard-hit U.S. housing market find some footing
in 2009 after a three-year slump.

The MBA said borrowing costs on 30-year fixed-rate
mortgages, excluding fees, averaged 4.94 percent, down 0.07
percentage point from the previous week, the lowest since the
week ended Dec 18.

An all-time low of 4.61 percent was set in the week ended
March 27, 2009. Interest rates were also well above the
year-ago level of 5.19 percent. The survey has been conducted
weekly since 1990.

Celia Chen, senior director of housing economics at Moody’s
Economy.com in West Chester, Pennsylvania, said they expect
30-year fixed rate mortgages to reach 5.50 percent by the
middle of the year and just shy of 6 percent by year-end.

“The end to the Federal Reserve’s purchase of
government-sponsored enterprise mortgage-backed securities,
combined with slightly stronger inflationary expectations will
cause rates to rise,” she said.

The Federal Reserve is set to stop buying mortgage-related
securities at the end of March. The Fed’s agency MBS and agency
debt purchase programs, aimed at lowering borrowing costs, will
have reached more than $1.4 trillion.

“Home prices will fall, probably until the end of the
year,” Chen said. “The large pipeline of distressed properties
that may turn into foreclosure sales weigh down the home price
outlook.”

“There is a great deal of uncertainty over how many
properties will end up on the market as a foreclosure sale,
however,” she said.

The housing market faces plenty of obstacles.

In the fourth quarter, one of every five U.S. homeowners
owed more on their mortgage than their home was worth, a trend
that poses a serious threat to the U.S. housing market’s
recovery, real estate website Zillow.com said on Wednesday. For
details, double-click on [ID:nN09143782]

The MBA’s seasonally adjusted purchase index (USMGPI=ECI: ),
a tentative early indicator of home sales, decreased 7.0
percent, while its seasonally adjusted index of refinancing
applications (USMGR=ECI: ) increased 1.4 percent.

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For a graphic on mortgage refinancing, click on:
http://link.reuters.com/cyj78h

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The refinance share of mortgage activity increased to 69.7
percent of total applications from 69.2 percent the previous
week. The adjustable-rate mortgage (ARM) share of activity was
4.5 percent, unchanged from the previous week.

The MBA said fixed 15-year mortgage rates averaged 4.33
percent, unchanged from the previous week. Rates on one-year
ARMs decreased to 6.68 percent from 6.70 percent.
(Editing by Jeffrey Benkoe)

UPDATE 1-U.S. home loan demand drops despite drop in rates