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Home loan demand falls despite rate drop

Consumers filed fewer loan applications to purchase homes last week despite a drop in long-term interest rates, an industry trade group said on Wednesday.
/ Source: Reuters

Consumers filed fewer loan applications to purchase homes last week despite a drop in long-term interest rates, an industry trade group said on Wednesday.

The Mortgage Bankers Association’s seasonally adjusted purchase mortgage index -- considered a timely gauge on U.S. home sales -- decreased 1.9 percent to 400.8 for the week ended Feb. 24 from the previous week’s 408.7.

The index was also well below its year-ago level of 440.0.

“The decline helps affirm cooling in the housing sector and is consistent with other broad-based data we have seen,” said Christopher Low, chief economist at FTN Financial.

Low pointed to this week’s housing data on new and existing U.S. home sales, both of which showed declines in January.

The MBA’s purchase index is currently averaging around 400, sharply below its January average of 450, he said.

“It looks as if the housing market has run its course, but it has been about 15 years since we have seen a correction in housing,” he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.18 percent, down 0.04 percentage point from the previous week.

The 30-year fixed-rate mortgage, the industry benchmark, is substantially above its 2005 low of 5.47 percent in late June, but below its 2005 high of 6.33 percent reached in the week of Nov. 11.

Fixed 15-year mortgage rates averaged 5.84 percent, down from 5.87 percent the previous week. Rates on one-year adjustable-rate mortgages increased to 5.64 percent from 5.60 percent.

The fall in purchasing activity drove overall mortgage activity lower last week. The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity fell 1.2 percent to 571.5 from the previous week’s 578.5.

ARM demand falls, refinancing drops
An increasing number of borrowers have been converting their ARMs into new fixed-rate loans as the difference between adjustable and fixed mortgage interest rates narrow, analysts say.

Last week’s drop in rates managed to marginally impact demand for home refinancing.

The group’s seasonally adjusted index of refinancing applications edged up 0.1 percent to 1,573.5 compared to 1,571.4 the previous week.

Refinancings, however, decreased as a percentage of all mortgage applications, falling to 38.1 percent from 38.2 percent, the MBA said.

“Fixed mortgage rates stayed in a narrow, historically low, band in February,” said Bob Walters, chief economist of Quicken Loans, an online mortgage lender.

“However, with short term rates now decidedly above long term rates, homeowners with adjustable rate mortgages, who have felt the sting of the rising short term rates, are flocking into the security of long-term fixed rate loans,” he said.

The ARM share of activity fell to 28.3 percent of total applications from 29.1 percent the previous week.

ARM demand reached a 2005 high of 36.6 percent in late March.

The MBA’s survey covers about 50 percent of all U.S. retail residential mortgage originations. Respondents include mortgage bankers, commercial banks and thrifts.