UPDATE 1-US home purchase demand drops after tax credit ends

(Recasts, adds link to graphic)

By Julie Haviv

NEW YORK, May 12 (BestGrowthStock) – U.S. mortgage applications for
home purchase loans dropped in the first week after the
expiration of popular federal home buyer tax credits, an
industry group said on Wednesday, highlighting the
vulnerability of the hard-hit housing market to the absence of
key support.

Existing homeowners, however, came out in droves to
refinance loans as interest rates on U.S. 30-year fixed-rate
mortgages, the most widely used loan, reached their lowest
level since mid-March.

The Mortgage Bankers Association said borrowing costs on
30-year fixed-rate mortgages, excluding fees, averaged 4.96
percent for the week ended May 7, down 0.06 percentage point
from the previous week and the lowest since the week ended
March 12.

“The recent plunge in rates on U.S. Treasury securities,
due to a flight to quality as investors worldwide sought
shelter from the Greek debt crisis, benefited U.S. mortgage
borrowers last week,” Michael Fratantoni, MBA’s vice president
of research and economics, said in a statement.

Mortgage rates are linked to yields on Treasuries and
yields on mortgage-backed securities. Yields move inversely to
price.

The MBA’s seasonally adjusted purchase index (USMGPI=ECI: ),
a tentative early indicator of home sales, decreased 9.5
percent, the first drop in four weeks.

Fratantoni said the government’s recently expired home
buyer tax credits likely pulled some sales into April that
would otherwise have occurred in May or later. Those seeking to
take advantage of the $8,000 first-time home buyer tax credit
or a $6,500 credit for home owners buying a new residence had
to sign purchase contracts by April 30 and have until June 30
to close on the sales.

Recent robust data on pending, new and existing home sales
show a sector that has benefited smartly from these incentives.
Upcoming data will therefore provide key insight into how
housing is faring without them.

The MBA’s seasonally adjusted index of mortgage
applications (USMGM=ECI: ), which includes both purchase and
refinance loans, increased 3.9 percent. The four-week moving
average of mortgage applications, which smooths the volatile
weekly figures, was up 4.4 percent.

The MBA’s seasonally adjusted index of refinancing
applications (USMGR=ECI: ) increased 14.8 percent, the highest
in six weeks.

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For a graphic on mortgage applications and mortgage rates,
click on: http://link.reuters.com/hup73k

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Leif Thomsen, chief executive of Mortgage Master in
Walpole, Massachusetts, said fears of rising mortgage rates are
leading many people to refinance now rather than later.

“Rates are still exceptionally low and people, on average,
are feeling better about their job situation and their future,”
he said.

“People have been prepared for this day to come and now
that it has arrived, they are acting quickly,” he said.

The MBA said fixed 15-year mortgage rates averaged 4.32
percent, down from 4.34 percent the previous week. Rates on
one-year adjustable-rate mortgage, or ARMs, decreased to 6.86
percent from 7.03 percent.

Investment

(Editing by Kenneth Barry)

UPDATE 1-US home purchase demand drops after tax credit ends