Applications for mortgages up 2.4 percent

Homebuyers anticipating rise in borrowing costs

April 03, 2005|By BLOOMBERG NEWS

Mortgage applications rose for the second time in three weeks as more people bought homes in anticipation that borrowing costs will keep rising, an industry report showed.

The Washington-based Mortgage Bankers Association said its gauge of mortgage applications rose 2.4 percent in the week ended March 25 to 674.3 from 658.8 a week earlier. The group's purchase index rose 5.5 percent, the biggest increase since mid-January, to 470.9 from 446.4. It was a record 501.6 in January 2004.

The average rate on a 30-year fixed mortgage rose to 6.08 percent, the first time since June that the rate has been higher than 6 percent. The prospect of higher borrowing costs, as Federal Reserve policy-makers continue to raise their benchmark overnight lending rate, might be spurring some people to buy homes, economists said.

"When interest rates start to rise, housing activity starts to increase, and this is the first meaningful rise [in long-term rates] that we've seen in a while," said Mike Englund, chief economist at Action Economics LLC in Boulder, Colorado. "Rates are still low, and job growth is helping fuel housing demand, so we're still optimistic on the housing outlook."

The mortgage bankers' gauge of applications to refinance mortgages fell 2 percent to 1857.2 from 1894.4. Refinancing as a share of all mortgage applications fell to 37.8 percent from 39.5 percent, suggesting consumers will rely less on home equity as a source of income to boost spending.

The mortgage bankers' survey covers approximately 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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