Mortgage applications down 0.7% last week

Yet housing demand expected to remain high

August 15, 2004|By BLOOMBERG NEWS

An index of mortgage applications in the U.S. fell last week, led by a decline in requests for loans to buy homes.

The Mortgage Bankers Association's gauge of applications to buy and refinance homes dropped 0.7 percent to 616.1, the lowest level since the end of June. The index of applications to purchase homes fell 2.7 percent to 440.

Mortgage rates below 6 percent for the past six weeks and within a percentage point of record lows are helping to keep purchasing high and add to the number of loans refinanced. Housing demand will remain strong even if the Federal Reserve continues to raise interest rates, economists said.

"The interest-sensitive housing market is still incredibly strong," Tim Rogers, chief economist at, said from his office outside Boston. "I don't think the housing market is really going to fall off severely until rates get up around 7 percent."

The group's index of applications to refinance loans rose 2.5 percent to 1,640.5, helped by mortgage rates that reached the lowest level in four months.

Applications to refinance loans rose to 37.2 percent of the group's total measure, from 35.8 percent a week earlier. These applications have fallen 84 percent from the record set in May last year and were down almost half last week compared with the corresponding week last year.

Of applications filed last week, 34.2 percent were for adjustable-rate mortgages, up from 33.5 percent in the week that ended July 30.

The Fed boosted its benchmark interest rate by 25 basis points to 1.5 percent and restated its pledge to lift borrowing costs at a "measured" pace to suppress inflation without choking off growth.

"Mortgage rates are actually down" since the Fed raised rates June 30 for the first time in four years, said Bob Moulton, president of Americana Mortgage Group Inc. in Manhasset, N.Y. "On a year-to-date basis, the housing market is still very strong, but the next labor report will be crucial. If we have higher interest rates and weak job data, we will see an effect on housing."

About 32,000 workers were added to U.S. payrolls in July, the Labor Department said this month.

Homebuilders have said job growth and economic expansion will keep buyers in the market even as mortgage rates rise. The Fed blamed the slowdown of improvement in the labor market and output growth on higher energy prices and said "the economy nevertheless appears poised to resume a stronger pace of expansion going forward."

The mortgage bankers survey covers about 50 percent of all retail residential mortgage originations and has been conducted weekly since 1990. The base date is March 16, 1990, when the value for all indexes was 100.

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