Mortgage applications, refinancing decline again

November 20, 2005|By BLOOMBERG NEWS

U.S. mortgage applications declined last week for the third time in the past four as higher borrowing costs led to less refinancing, according to a survey released Wednesday.

The Mortgage Bankers Association's index of applications fell 0.6 percent to 657.6 for the week that ended Nov. 11 from 661.3 the previous week. The refinance index dropped 5.4 percent to 1,702.4, the lowest this year, from 1,798.8. Home purchase applications rose for a second week.

Refinancing has declined 28 percent in the past year as rising mortgage rates have made it less beneficial for homeowners to tap into home equity, removing a source of cash for consumers. Higher borrowing costs are expected to slow home sales next year, according to the National Association of Home Builders.

"The recent steep uptrend in market yields is no doubt having an impact on refinance activity," said Michael R. Englund, chief economist at Action Economics LLC in Boulder, Colo.

Rising mortgage rates are reflecting 12 consecutive quarter-point increases in the overnight lending rate that the Federal Reserve has engineered since June 2004.

The mortgage association's home purchase index rose 2.6 percent to 477.9 for the week ending Nov. 11 from 465.7 the previous week. The measure is down 9.7 percent from a record 529.3 in June, suggesting a gradual slowdown in housing.

"The anecdotes we hear and the expectation is that the rate of increases in housing prices will slow," said Michael H. Moskow, president of the Federal Reserve bank in Chicago, at a business meeting Tuesday. "If that happens gradually, I think the economy will adjust to that in an appropriate fashion without significant side effects."

Refinancing applications as a share of total loan applications fell to 40.4 percent from 41.7 percent. Applications for adjustable-rate loans rose to 32.9 percent from 31.6 percent of the total, the mortgage bankers said.

The National Association of Home Builders forecasts 7.08 million home sales next year, down from a projected record of 7.44 million this year.

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