Mortgage applications fall to late May level

July median price up 14%

Higher home prices blamed for slowing sales

September 04, 2005|By BLOOMBERG NEWS

Mortgage applications declined last week to the lowest level since the end of May as fewer people bought homes or refinanced, a private report showed.

The Mortgage Bankers Association's index of home purchase and refinancing applications declined 4.5 percent to 722.5 in the week that ended Aug. 26 from 756.2.

The group's measure of home purchase applications also declined to the lowest level since the end of May. The decrease came as mortgage rates fell and suggests higher home prices may be keeping sales from accelerating.

"Between now and the end of the year, we'll see a little bit of a slowing in sales but nothing to cause a panic or even serious concern," said Anthony Chan, senior economist at JPMorgan Asset Management in Columbus, Ohio. "It shouldn't be precipitous."

The index of purchase applications decreased 3.6 percent to 470.6 from 488.4. The mortgage bankers group's gauge of applications to refinance existing mortgages fell 5.4 percent to 2,187.8 last week from 2,313.9.

Recent data on previously owned homes showed the median price increased in July to a record $218,000. The median price is 14 percent higher than in July last year, the biggest year-over-year rise since 1980.

The percentage of applications for adjustable-rate mortgages fell to 27.8 percent of mortgage activity in the week ending Aug. 26 from 28.1 percent. The adjustable-rate share of the mortgage market has fallen since March, when it was as high as 36.6 percent, suggesting people locked in long-term rates months ago in anticipation of higher borrowing costs.

"The real story in mortgage rates is the likelihood of a steady increase in shorter rates, like the adjustable-rate mortgages," said Gina Martin, an economist at Wachovia Corp. "Short-term rates are more responsive to the gains that have already occurred in the federal funds target rate and the additional increases we're expecting."

Federal Reserve policymakers have raised the benchmark federal funds rate 10 times since June of last year, from 1 percent to 3.5 percent. Fed Chairman Alan Greenspan has warned of "froth" in the housing market. He and other Fed policymakers noted "anecdotal evidence of some cooling" in housing markets, according to the minutes of the Aug. 9 meeting of the Fed's Open Market Committee, released last week.

Home sales this year will probably reach a fifth-straight record. New-home sales rose 6.5 percent to a record annual rate of 1.41 million in July from 1.324 million in June, the Commerce Department reported. Sales of previously owned homes fell 2.6 percent in July to a 7.16 million annual pace from a record 7.33 million in June, according to the National Association of Realtors.

The Mortgage Bankers Association survey covers about half of all U.S. retail residential mortgage originations and has been compiled every week since 1990.

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