The number of mortgage applications in the U.S. declined for a fifth straight week, led by a drop in refinancing even as mortgage rates fell to a record low.
The Mortgage Bankers Association’s index decreased 0.2 percent in the week ended Oct. 1, the Washington-based group said today. Refinancing fell to an eight-week low, while purchases increased by the most since April.
An unemployment rate close to a 26-year high and stricter lending standards are limiting home sales even as record-low mortgage rates make buying more affordable. Federal Reserve Bank of New York President William Dudley said last week the outlook for job growth and inflation is “unacceptable,” and more monetary easing is probably needed to bolster the economy.
“The housing market is moving up a little off the bottom,” Michael Feroli, chief U.S. economist at JPMorgan Chase in New York, said before the report. “Refi activity has come down a little, but it’s still quite high. There is probably only a limited capacity to refinance because so many people are with negative equity on the homes.”
The mortgage banker’s group’s refinancing gauge fell 2.5 percent. The purchase measure increased 9.3 percent.
A report earlier this week showed the number of contracts to purchase previously owned homes increased for a second month. The National Association of Realtors’ index of pending home resales rose 4.3 percent in August, more than forecast, after a 4.5 percent gain. Compared with the same month a year ago, pending sales were down 18 percent.
Record Low
The average rate on a 30-year fixed mortgage fell to 4.25 percent, the lowest in records going back to 1990, today’s report showed. At that pace, monthly payments for each $100,000 of a loan would be about $491.94, or $37.57 less than a year ago when the rate was 4.88 percent.
The average rate on a 15-year fixed loan fell to 3.73 percent, also the lowest on record, from 3.77 percent and the rate on a one-year adjustable increased to 7.11 percent from 7.04 percent.
The share of applicants seeking to refinance a loan fell to 78.9 percent from 80.7 percent.
Sales plummeted after the deadline for signing contracts and becoming eligible for a government homebuyer tax credit worth as much as $8,000 expired on April 30.
The Obama administration said Aug. 30 it planned to announce a proposal for an emergency loan program to help the unemployed avoid default. The plan would also include a government mortgage refinancing effort to lower monthly mortgage payments for Americans facing foreclosure.
Home Prices
Home prices rose 3.2 percent in July from a year earlier, the smallest gain since March, according to a report last week from S&P/Case-Shiller released Sept. 28.
U.S. home prices may fall again unless the government provides new aid enabling owners to refinance mortgages, Harvard University economics professor Martin Feldstein said yesterday.
“The danger is house prices are going to start falling again because of the end of the first-time homebuyer credit,” Feldstein said in an interview on Bloomberg Television’s “InBusiness With Margaret Brennan.” “That fall in house prices,” coupled with a lack of equity in homes, “could lead to a big increase in defaults and foreclosures, putting more homes on the market driving prices down.”
By businessweek.com
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