U.S. mortgage applications fell for the first time in four weeks as demand for home purchase loans dropped to the lowest level in nearly three years, an industry trade group said Wednesday.
The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity, which includes both refinancing and purchasing loans, for the week ended Aug. 25 decreased 0.9 percent to 556.5 from the previous week’s 561.5, nearly 23 percent below their year-ago level.
John Shin, senior economist at Lehman Brothers in New York, said last week’s decline was consistent with the overall downward trend in housing.
“We’re still in the soft landing camp for the housing market,” he said. “We do see a sizable impact on the economy and expect that the slowing housing market is going to trim roughly one percentage point off of growth over the rest of this year and next year as well.”
Shin said he expects this drop to largely be driven by lower personal consumption, but a reduction in construction and residential investment will also play a role.
Fueling the fall last week was the 1.6 percent fall in the MBA’s seasonally adjusted purchase mortgage index to 375.9, its lowest since November 2003.
The purchase index, which is considered a timely gauge of U.S. home sales, is standing well below its year-ago level of 470.6, a drop of 20.1 percent.
A refinancing rebound
It was the sixth straight week that home refinancing demand rose, which has primarily been a result of a recent retreat in mortgage rates.
Last week borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.39 percent, up 0.01 percentage point from the previous week when they sank to their lowest since March. Interest rates were above year-ago levels of 5.73 percent but below a four-year high of 6.86 percent touched in June.
The group’s seasonally adjusted index of refinancing applications increased slightly to 1,609.2 from 1,608.5, down 26.4 percent from a year ago when the index stood at 2,187.8.
The refinance share of applications increased to 41.5 percent from 40.6 percent the previous week, its highest since February.
Fixed 15-year mortgage rates averaged 6.06 percent, up from 6.04 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.97 percent from 5.91 percent. The ARM share of activity increased to 26.8 percent of total applications from 26.4 percent the previous week.
A focus on the Fed
After historically low mortgage rates fueled a five-year housing boom, a deluge of recent data showing a surge in the number of homes for sale and dwindling demand signals the once-robust market is cooling, industry analysts say.
In fact, the gap between the supply of homes for sale and demand for housing has caused prices to start leveling off and even decline in some geographic areas.
Many analysts view the housing market as a key factor in Federal Reserve policy. With a slower housing market, growth in the United States should level off as well, which may play a role in monetary policy going forward.
The next Fed policy-making meeting will be on Sept. 20.
“We think the Fed is going to still hike rates two more times this year because we don’t think the U.S. housing market is going to drop so suddenly that the Fed will have to step in and do anything,” said Shin. “Inflation pressures are still first and foremost going to be key for the rest of the year.”
The MBA’s survey covers about 50 percent of all U.S. retail residential mortgage loans. Respondents include mortgage bankers, commercial banks and thrifts.