Wednesday, February 06, 2008

US home loan demand rises to highest since '04-MBA

Wed Feb 6, 2008 11:23am EST

By Julie Haviv

NEW YORK, Feb 6 (Reuters) - U.S. mortgage applications rose last week to the highest level in nearly four years, fueled by demand for home purchase loans as interest rates hovered near recent lows, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Feb. 1 rose 3 percent to 1,086.6, its highest since the week ended March 26, 2004.

The sharp rise in home purchase applications last week may offer a glimmer of hope for the hard-hit U.S. housing market.

Bob Walters, chief economist at Quicken Loans, an online mortgage lender in Livonia, Michigan, said those seeking to purchase a home have had plenty to cheer about in recent weeks as long term interest rates plummeted to near historic lows.

"Right now they have the best of both worlds," he said. "Home prices have become more affordable due to a sizable inventory of unsold homes, and they can finance their purchase at decade-low interest rates."

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.61 percent, up 0.1 percentage point from the previous week and 0.12 percentage point above where it stood two weeks prior when it reached its lowest since late June 2005.

Interest rates were below year-ago levels at 6.23 percent.

Mortgage rates have fallen along with U.S. Treasury yields in recent weeks. The benchmark 10-year U.S. Treasury note yield fell further on Tuesday after data showed the vast U.S service sector contracted sharply last month, sending recession-wary investors into safe-harbor government bonds. Yields move inversely to price.

Many analysts, however, say the MBA's data has been skewed in recent months as prospective borrowers have been filing multiple applications to obtain a single loan due to widespread tightening of lending standards.

The MBA's data also counts all applications, including borrowers who are ultimately denied.

Furthermore, the MBA's data only includes retail lenders, which have most probably witnessed an increase in applications as wholesale lenders pull back from the market, according to Michelle Meyer, an economist at Lehman Brothers in New York.

"The home purchase data is incredibly volatile on a weekly basis and last week's jump does not suggest a turnaround in home sales," she said. "It is quite unreliable and a poor indicator of future home sales because purchase applications have been little changed over the past year and a half while home sales have fallen sharply."

The MBA's seasonally adjusted purchase index jumped 12.0 percent to 405.3. The index came in above its year-earlier level of 404.7, a rise of 0.1 percent.

Overall mortgage applications last week were 72.4 percent above their year-ago level. The four-week moving average of mortgage applications, which smooths the volatile weekly figures, was up 10.4 percent to 1,007.4.


The rise in applications last week was largely due to increased demand for home purchase loans. Demand for home refinancing loans, however, dropped last week after surging the previous three weeks.

The group's seasonally adjusted index of refinancing applications decreased 1.0 percent last week to 5,054.0.

However, the index, which is closely tied to mortgage rates, was up 160.1 percent from its year-ago level of 1,943.4.

Fixed 15-year mortgage rates averaged 5.09 percent, up from 5.04 percent the previous week. Rates on one-year adjustable-rate mortgages decreased to 5.62 percent from 5.70 percent.

The refinance share of applications decreased to 69.2 percent from 73.0 percent the previous week. The ARM share of activity increased to 8.8 percent, up from 8.6 percent the previous week. (Reporting by Julie Haviv; Editing by Tom Hals)

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