Mortgage index posts tiny gain

Loan applications rise for first time in 6 weeks amid fears of higher rates

May 02, 2004|By BLOOMBERG NEWS

An index of U.S. mortgage applications has increased for the first time in six weeks as consumers bought homes amid expectations borrowing costs may keep rising, according to an industry report Wednesday.

The average 30-year fixed rate rose above 6 percent for the first time this year.

The Mortgage Bankers Association's index of applications for mortgages rose 0.5 percent last week to 748, up from 744.5 the previous week.

The association's index of applications to purchase homes increased 6.8 percent to 463.5, the highest since the beginning of last month. It reached a high of 501.6 in January.

The average contract for a 30-year, fixed-rate mortgage rose to 6.01 percent last week, from 5.94 percent the previous week. Shorter-term rates also increased, causing refinancing to fall for a fifth week. Refinancing was a source of extra cash for homeowners last year, helping bolster spending.

"Mortgage applications for home purchase are unlikely to crack at the first sign of higher mortgage rates," said Robert Mellman, an economist at J.P. Morgan Securities. "Some buyers may be rushing in an effort to beat further increases."

The gauge of applications to refinance loans fell 5.8 percent to 2,403. The index is down 52 percent from the eight-month high it reached March 19.

Although rising rates make it less attractive for people to refinance, the effect on sales might not be as big this year, said Douglas G. Duncan, chief economist of the Mortgage Bankers Association.

"We still expect a very strong year. New homes sales, we actually expect a record just by a hair," Duncan said. "As the rest of the economy picks up, it'll move into more of a normal role of one of the supporters rather than the sole support for the economy, which it's been for the last two or three years."

Sales of new and existing homes will total 7.09 million, second to last year's record of 7.19 million, Duncan predicted last month.

Mortgage lending will decline 33 percent to $2.57 trillion, reflecting the drop in refinancing, he said, and the rate on a 30-year fixed mortgage might rise as high as 6.25 percent.

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