Mortgage demand falls despite low rates

Home loan demand drops for 1st time in 4 weeks

By Julie Haviv 1 hour, 15 minutes ago

U.S. mortgage applications fell last week for the first time in four weeks, reflecting a drop in demand for home refinancing even as interest rates hovered near recent lows, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity for the week ended March 16, which includes both refinancing and purchasing loans, decreased 2.7 percent to 672.1.

Applications, however, were 19.0 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 2.5 percent to 665.1.

Phillip Neuhart, an economic analyst at Wachovia Corp. in Charlotte, North Carolina, said the U.S. housing market has become increasingly pivotal to Federal Reserve monetary policy and right now they are taking a "wait-and-see" attitude.

"I don't think the Fed is going to drop rates in the near-term since core inflation is above their comfort zone," he said. "They are not going to cut off their nose to spite their face."

Market participants will be looking for any hints from Federal Reserve policy-makers at the conclusion of a two-day meeting Wednesday afternoon that they may be concerned about the level of subprime loan defaults and the potential impact on the U.S. economy.

"I don't see the Fed getting caught up in headline and headline risk," Neuhart said.

Rapidly rising defaults in the subprime mortgage market, which caters to borrowers with poor credit histories, and collapsing lenders may be taking a toll on home sales.

The MBA's seasonally adjusted purchase index, considered a timely gauge of U.S. home sales, fell 0.9 percent to 410.6. The index, however, was above its year-ago level of 393.6, a rise of 4.3 percent.

"With regulators looking to tighten up lending standards, it will be a supply constraint on mortgage issuance," said Neuhart. "If the supply of loans is limited, there are going to be fewer homebuyers since they can't get a mortgage."

REFINANCING SKIDS BUT ABOVE YEAR-AGO

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.06 percent, up 0.03 percentage point from the previous week when it reached its lowest level since early December.

Interest rates were also significantly below year-ago levels of 6.31 percent.

While demand for home loan refinancing lost its luster last week, it was sharply above its year-ago level.

The group's seasonally adjusted index of refinancing applications slipped 4.5 percent to 2,208.6, up 40.3 percent from a year ago when the index stood at 1,574.5.

The refinance share of applications fell to 45.3 percent from 46.2 percent the previous week.

Fixed 15-year mortgage rates averaged 5.79 percent, slightly up from 5.78 percent. Rates on one-year adjustable-rate mortgages increased to 5.88 percent from 5.86.

The ARM share of activity slipped to 20.9 percent from 21.9 percent the previous week.

U.S. housing industry indexes, in general, tend to be volatile and have recently painted a mixed picture, with some pointing to weakening and others to stabilization in the hard-hit sector.

The Mortgage Bankers Association's survey covers about 50 percent of all U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.