US home refinancing demand drops despite low rates

By Julie Haviv

NEW YORK, Nov 3 (BestGrowthStock) – U.S. mortgage applications for
home refinancing loans fell last week even as interest rates
held near-record lows, data from an industry group showed on

The housing market has been showing modest signs of
improvement, with home sales picking up in many regions of the
country, but tight lending standards and a weak labor market
are preventing many consumers from taking advantage of
rock-bottom rates.

The Mortgage Bankers Association said its seasonally
adjusted index of mortgage applications (USMGM=ECI: ), which
includes purchase and refinance loans, decreased 5.0 percent
for the week ended Oct. 29. The four-week moving average,
which smoothes the volatile weekly figures, was up 0.1

It was the sixth time in eight weeks that activity fell.

The MBA’s seasonally adjusted index of refinancing
applications (USMGR=ECI: ) decreased 6.4 percent.

Tom Porcelli, head of U.S. market economics at RBC Capital
Markets in New York, said the drop in demand is a reflection
of the inability of many homeowners to take advantage of low
interest rates.

“Lending standards are still stunningly tight,” he said in
an interview before the release of the data.

“Consumers are in a de-leveraging mode, so buying a home
could not be further from their minds right now, and this is
what is keeping purchase applications low,” he said.

While demand for loans to purchase a home rose for a
second straight week, activity was below where it was earlier
in the month.

The MBA’s seasonally adjusted purchase index (USMGPI=ECI: ),
a tentative early indicator of home sales, rose 1.4 percent.


For a graphic on mortgage applications, click on:


Borrowing costs on 30-year fixed-rate mortgages, excluding
fees, averaged 4.28 percent, up 0.03 percentage point from the
previous week. Interest rates were also below their year-ago
level of 4.97 percent.

In the week ended Oct. 8, the rate reached 4.21 percent,
the lowest level in the survey, which has been conducted
weekly since 1990.

Porcelli said “underwater” mortgages — where the amount
owed on the mortgage exceeds the home’s value — are one of
the biggest banes of the homeowners who want to refinance.

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

The MBA said fixed 15-year mortgage rates averaged 3.64
percent, down from 3.67 percent the previous week. A record
low of 3.62 percent was set three weeks earlier.

But the rate on one-year adjustable-rate mortgage, or
ARMs, increased to 7.18 percent from 7.07 percent a week ago,
the MBA said.


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.

“If home loan refinancing picks up, it would certainly be
a positive for homeowners, and while I do not want to diminish
its importance, its impact on the economy should be utterly
modest,” he said.

The housing market has been struggling since the expiry of
popular home buyer tax credits earlier this year. 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.

The tax credits pulled sales forward and activity dropped
after the expiry.

More insight into the state of the housing market will
emerge on Friday when the National Association of Realtors
releases its September pending home sales data.
(Editing by Jan Paschal)

US home refinancing demand drops despite low rates