US home loan demand slumps as rates rise from lows

By Julie Haviv

NEW YORK, Oct 20 (BestGrowthStock) – U.S. mortgage applications
slumped last week as interest rates on 15- and 30-year
fixed-rate mortgages rose for the first time in six weeks, data
from an industry group showed on Wednesday.

Interest rates, however, are not far from record lows and
the drop in demand does not bode well for the housing market,
which has been showing signs of improvement but remains highly
vulnerable to setbacks.

The Mortgage Bankers Association said its seasonally
adjusted index of mortgage applications (USMGM=ECI: ), which
includes both purchase and refinance loans, for the week ended
Oct. 15 decreased 10.5 percent. The four-week moving average of
mortgage applications, which smooths the volatile weekly
figures, was up 0.4 percent.

Demand for home refinancing loans fell for the sixth time
in seven weeks. The MBA’s seasonally adjusted index of
refinancing applications (USMGR=ECI: ) decreased 11.2 percent.

Mark Vitner, senior economist at Wells Fargo Securities in
Charlotte, North Carolina, said the drop in demand is a
reflection of the inability of many homeowners to take
advantage of record low interest rates.

“Tight lending standards are preventing many homeowners
from home loan refinancing,” he said. “Low credit scores and
high unemployment are also playing a big role.”

Vitner said “underwater” mortgages — where the amount owed
on the mortgage exceeds the value of the home — are one of the
biggest banes of the homeowners.

This negative equity makes many of them unqualified for
home loan refinancing and prevents some from selling.

The drop-off in home loan refinancing demand does not bode
well for the flailing U.S. economy as this activity typically
encourages an increase in consumer spending.

By lowering monthly mortgage payments, lower rates may also
help some homeowners avoid default and foreclosure if their
credit is good enough.

The MBA’s seasonally adjusted purchase index (USMGPI=ECI: ),
a tentative early indicator of home sales, decreased 6.7

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.

Encouraging news on housing, however, emerged this week.

The Commerce Department said on Tuesday U.S. housing starts
unexpectedly rose in September to a five-month high.

Vitner said home sales and housing construction should be
modestly stronger next year, while home prices will probably
continue to fall for another 6 to 9 months before bottoming in
the spring.

“We expect a recovery in housing to be agonizingly slow,”
he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding
fees, averaged 4.34 percent, up 0.13 percentage point from the
previous week. Interest rates were also below their year-ago
level of 5.07 percent

The previous week’s interest rate was the lowest level in
the survey, which has been conducted weekly since 1990.


For a graphic on mortgage applications, click on:


The MBA said fixed 15-year mortgage rates averaged 3.74
percent, up from the previous week’s record low of 3.62
percent. Rates on one-year adjustable-rate mortgage, or ARMs,
increased to 7.17 percent from 7.03 percent.

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

US home loan demand slumps as rates rise from lows