Mortgage applications drop 6.3%, the biggest weekly decline in a month

Fall coincides with slight increase in 30-year rate

August 29, 2004|By BLOOMBERG NEWS

U.S. mortgage applications fell 6.3 percent last week, the biggest decline in more than a month, as fewer people filed to buy a home or refinance.

The Washington-based Mortgage Bankers Association's gauge decreased to 646.3 from 689.4 the week before. The group's purchase index dropped 5 percent to 443.7 from 467.1, and its measure of applications to refinance fell 8 percent to 1824.9.

The average fixed rate on a 30-year mortgage rose to 5.78 percent from 5.75 percent, still within a percentage point of the record low last year and helping keep purchase applications close to a record reached in January. Waning pent-up demand may keep home sales from accelerating in coming months, economists said.

The home purchase applications index reached an all-time high of 501.6 in January.

Applications to refinance loans accounted for 40.4 percent of all applications, little changed from 40.7 percent a week earlier. The percentage of applications for adjustable-rate mortgages fell to 32.1 percent from 33.6 percent.

The National Association of Realtors said Tuesday that sales of previously owned homes fell 2.9 percent in July, still the third-highest monthly rate on record. The decline was the first in seven months. U.S. new-home sales in July dropped 6.4 percent to a 1.134 million annual rate, the Commerce Department said Wednesday. New-home sales reached a record 1.283 million rate in May.

"The present level of home sales activity is considerably above last year's record, and the new benchmark we'll set in 2004 is a significant contributor to overall U.S. economic growth," David Lereah, chief economist at the National Association of Realtors, said in a statement.

Lereah said that while home sales may slow in the second half as the Federal Reserve keeps raising interest rates to ensure that inflation doesn't accelerate, the housing market will remain "very healthy."

Surging demand and tight supplies have boosted prices, raising concern among some economists that homes may become unaffordable for many would-be buyers. The median home price in July reached a record $191,300, according to the National Association of Realtors.

The median U.S. price for an existing single-family house probably will rise 6.1 percent this year, said Washington-based Fannie Mae, the largest U.S. mortgage financier, in a report this month. A month ago, the Washington-based company estimated a 5.3 percent gain in the median price. Fannie Mae said the pace of home price appreciation was "unsustainable."

Fed Chairman Alan Greenspan said in a letter released last week that Fed policymakers can't accurately tell whether home values across the United States are overheating.

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

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