Mortgage applications increase 2.2%, survey of lenders shows

August 21, 2005|By BLOOMBERG NEWS

An index of U.S. mortgage applications rose to the highest level in a month, as homeowners took advantage of a drop in interest rates to refinance, a survey of lenders showed.

The Mortgage Bankers Association's measure of home purchases and refinancing increased 2.2 percent to 761.3 in the week ended Aug. 12 from 745. Refinancing rose 5 percent, the biggest increase since the week that ended July 1.

Thirty-year fixed mortgage rates declined for the first time in seven weeks, which also led to more homebuying, the bankers group said. Borrowing costs within a percentage point of historic lows and ready access to credit from lenders such as Wachovia Corp. are fueling a record home sales pace and bolstering the economy.

"People who had been sitting on the sidelines may have seen these drops as one last opportunity to get in before rates continue up," said Michelle Ashworth, senior vice president and managing director of asset management at Wachovia Corp. in Charlotte, N.C.

The mortgage bankers group's gauge of applications to refinance existing mortgages rose to 2285.5 from 2176.5, the first gain since mid-July and the largest increase since a 10 percent jump six weeks earlier.

Applications to buy homes rose 0.1 percent last week to 499.3 from 498.8, the association said. In the week ended June 10, the measure was at a record 529.3.

Prices surged 13.6 percent in the second quarter, the fastest pace in more than a quarter of a century, the National Association of Realtors reported in Washington on Monday. The Realtors group on Aug. 9 said sales of new homes and existing homes will reach records this year before slowing next year as the Federal Reserve increases the benchmark interest rate.

"The housing market is probably reaching close to a peak," said Lynn Reaser, chief economist at Banc of America Securities LLC in Boston. "Activity is likely to begin to level off over the next few months due to the impact of higher rates and some easing in investment demand for housing."

Last week's report showed that the share of applications to refinance increased to 42.4 percent of all mortgage applications from 40.9 percent the previous week.

It also showed the share of applications for adjustable-rate mortgages decreased to 28.9 percent from 29.7 percent of total applications. The share has fallen since March, when it was as high as 36.6 percent, a sign people are switching out of variable rates and locking in lower long-term rates on expectations of higher borrowing costs in coming months.

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