US home loan demand rises as rates hit new low

By Julie Haviv

NEW YORK, Sept 1 (BestGrowthStock) – U.S. mortgage applications for
home purchasing and refinancing increased last week as interest
rates hit a new low, a glimmer of hope for a housing market
that has failed to find footing in the absence of government

Demand for home loan refinancing rose for a fifth straight
week, a development that may provide a much-needed jolt to a
flailing economy as it could portend an increase in consumer

The Mortgage Bankers Association on Wednesday said its
seasonally adjusted index of mortgage applications (USMGM=ECI: ),
which includes both purchase and refinance loans, for the week
ended Aug. 27 increased 2.7 percent. The four-week moving
average of mortgage applications, which smooths the volatile
weekly figures, was up 5.2 percent.

The MBA’s seasonally adjusted index of refinancing
applications (USMGR=ECI: ) increased 2.8 percent, reaching the
highest level since the week ended May 1, 2009.

Home loan refinancing puts extra cash into consumers’ hands
that they can save, use to pay off existing debt or funnel into
the economy through extra spending.

“Refinancing activity picked up again last week, reaching
new 15-month highs, as borrowers took advantage of even lower
mortgage rates,” Michael Fratantoni, MBA’s Vice President of
Research and Economics, said in a statement.

“The drop in mortgage rates was in line with Treasury rates
as the latest data continue to show weak economic growth and an
exceptionally weak housing market,” he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding
fees, averaged 4.43 percent, down 0.12 percentage point from
the previous week. That is a lowest level in the survey, which
has been conducted weekly since 1990.

Interest rates were also below their year-ago level of 5.15

Michelle Meyer, senior U.S. economist at BofA Merrill Lynch
in New York, said the rise in demand for home loan refinancing
is a small positive for the economy, but activity remains

“Given how low mortgage rates have fallen, the number of
borrowers seeking to refinance has been disappointing,” she
said. “A large amount of borrowers have an incentive to
refinance, but they may have lost their jobs or the closing
costs are too high.”

The housing market has been struggling since the April 30
expiration of popular home buyer tax credits. To take advantage
of the tax credits, buyers had to sign purchase contracts by
April 30. Contracts originally had to close by June 30, but
that was extended by three months.

Home sales have tumbled in recent months and home prices
are expected to trek downward again amid a glut of homes up for
sale and mounting foreclosures.

“The volatile bottoming in the housing market will persist
for some time, creating a painful U-shaped recovery,” Meyer
said. “Housing construction is at a very depressed level, so I
do not see much more downside, but any recovery will be

Demand for home purchase loans has been tepid, but it
nevertheless rose for a second straight week. The MBA’s
seasonally adjusted purchase index (USMGPI=ECI: ), a tentative
early indicator of home sales, increased 1.8 percent.


For a graphic on mortgage applications, click on:


Ed Mulderrig, partner of Mulderrig Builders in Southampton,
New York, said a large majority of sales lately are below $1

“This is probably due to the people who bought, hoping to
ride the boom and sell, but do not have the financial backing
to hold for extended periods,” he said. “Refinancing is not
possible because even though mortgage rates are historically
low, the banks are extremely strict with their requirements.”

“Higher end homes are not selling as fast because the
people still believe their homes are worth close to 2006 prices
and most of them have the means to hold until an improvement in
prices,” he said.

The MBA said fixed 15-year mortgage rates averaged 3.88
percent, down from the previous week’s 3.91 percent, a record
low. Rates on one-year adjustable-rate mortgage, or ARMs,
decreased to 6.95 percent from 6.84 percent.

(Reuters Messaging: [email protected];
email: [email protected]; Tel: +1 646 223 6153;
Editing by Diane Craft))

US home loan demand rises as rates hit new low