BT : High demand for US home loans but refinancing falls

Business Times - 29 Apr 2010

High demand for US home loans but refinancing falls

(NEW YORK) US mortgage applications fell last week as a drop in home refinancing volume outweighed the highest demand for home purchase loans in six months, data from an industry group showed yesterday.

A modest rise in mortgage rates weighed on demand for home refinancing loans, while the imminent expiration of federal home buyer tax credits likely drove consumers to lock in rates, which remain historically low and are widely expected to move higher as the economy recovers.

The Mortgage Bankers Association said that its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, decreased 2.9 per cent for the week ended April 23.

The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was down 3.1 per cent.

The MBA's seasonally adjusted purchase index, a tentative early indicator of home sales, increased 7.4 per cent, reaching its highest level since the week ended Oct 16.

'Purchase activity continues to increase as we approach the end of the homebuyer tax credit programme,' Michael Fratantoni, MBA's vice-president of research and economics, said in a statement.

'Purchase applications were up almost 9 per cent from a month ago, with a disproportionate share of the increase due to government purchase applications. Government applications for purchasing a home accounted for almost 49 per cent of all purchase applications last week,' he said.

To qualify for tax credits of US$8,000 for first-time home buyers and US$6,500 for home owners buying a new residence, eligible borrowers must sign contracts by April 30 and close loans by June 30.

Recent data on sales of new and existing home sales indicate a strong benefit from the tax credits. Government data showed sales of newly built US single-family homes touched their highest level in eight months in March, while industry data showed sales of previously owned homes also gained in March.

James Mallozzi, chairman and chief executive officer of Prudential Real Estate and Relocation Services, said that while home buyer tax credits have helped both first-time home buyers and the US housing market overall, their expiration should not deter home purchasing activity.

'When it comes to home sales, the absolute level of home prices ranks first in importance, the level of mortgage rates ranks second, while the home buyer tax credits ranks a distant third,' he said.

The MBA said that borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.08 per cent, up 0.04 percentage point from the previous week. Interest rates were also above the year-ago level of 4.62 per cent. An all-time low of 4.61 per cent was set in the week ended March 27, 2009, based on a survey that dates to 1990.

Mortgage rates could head towards 5.50 per cent or 6 per cent later this year, Mr Mallozzi said.

'This could dampen demand and I foresee a slow housing recovery,' he said.

The MBA said that fixed 15-year mortgage rates averaged 4.38 per cent, up from 4.34 per cent the previous week. Rates on one-year adjustable-rate mortgages, or ARMs, increased to 7.03 per cent from 6.95 per cent\. \-- Reuters

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