Mortgage applications fall 4.4%, to lowest level in 3 months

Rising interest rates could be dampening demand for homes

April 10, 2005|By BLOOMBERG NEWS

Mortgage applications have declined to the lowest level since early January as purchases and refinancing have slowed, according to an industry report.

The Washington-based Mortgage Bankers Association said last week that its gauge of mortgage applications dropped 4.4 percent, from 674.3 to 644.5 in the week that ended April 1. That was the lowest since the 587.8 reading for the week that ended Jan. 7.

Rising interest rates might be lowering demand for housing, Douglas Duncan, chief economist at the Mortgage Bankers Association, said. The housing market, which helped boost the economy last year, might not contribute as much to growth this year.

"The rise in rates, which is just beginning to affect many borrowers, will impact the economy," said Mike Englund, chief economist at Action Economics LLC in Boulder, Colo. "Only recently have mortgage rates started to climb from what are for many generational lows."

The mortgage bankers group's purchase index declined 5.3 percent to 446 from 470.9 a week earlier. The gauge of applications to refinance mortgages fell 3.1 percent to 1,798.8 from 1,857.2 the previous week. The index measuring applications for adjustable-rate mortgages fell 8 percent.

Federal Reserve policy-makers raised the benchmark interest rate a quarter point to 2.75 percent March 22, the seventh such increase since June. The central bankers said pricing pressures have increased and signaled they will keep raising rates to preclude faster inflation.

Thirty-year mortgage rates "are moving up and we expect that by the end of the year they'll be around 6.5 percent," Duncan said. "That will make credit less affordable for some households."

Sales of new homes will probably total 1.143 million this year, compared with a record of 1.2 million last year, the Mortgage Bankers Association forecast for March showed. Sales of previously owned homes could slow this year to 6.57 million from a record 6.78 million last year, according to the National Association of Realtors.

Home sales in the first two months of the year were stronger than in the comparable period of last year as buyers rushed to complete purchases amid expectations of higher mortgage rates.

New and previously owned single-family homes and condominiums sold at an average annual rate of 7.98 million in January and February, compared with a 7.35 million pace in January and February 2004.

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