Mortgage application index falls 3.4 percent

Drop in loan requests is fourth in five weeks

November 27, 2005|By BLOOMBERG NEWS

WASHINGTON -- Mortgage applications fell to the second-lowest level this year on fewer home purchases and less refinancing, a private group's survey showed.

The Mortgage Bankers Association's index of applications fell 3.4 percent to 635.4 in the week ended Nov. 18, the lowest since Jan. 7 and the fourth decline in five weeks. The group's measure of refinancing dropped 6.9 percent to 1,584.1, the lowest since June 2004. Home purchase applications decreased 1.2 percent to 472.3.

Mortgage rates have risen more than three-quarters of a percentage point since the end of June, limiting homebuying and slowing refinancing that has been a source of cash for consumers.

"Clearly the price gains we've seen in housing this year are unsustainable," said Mike Englund, chief economist at Action Economics LLC in Boulder, Colo. "There is concern among some economists that the slowdown may ripple through to consumer spending."

The average rate on a 30-year fixed mortgage fell to 6.26 percent from 6.33 percent a week earlier. The rate is up from 5.47 percent in the week ended June 24.

The rise in mortgage rates in recent months reflects concerns over inflation and the Fed's 12 consecutive quarter-point increases in the overnight lending rate. The benchmark rate is at 4 percent.

Refinancing applications as a share of total loan applications fell to 39.9 percent from 40.4 percent. Applications for adjustable-rate loans rose to 33.2 percent from 32.9 percent of the total, the mortgage bankers said.

The mortgage bankers group's refinancing index has declined 47 percent since it reached a 2,967.4 in the week ended June 10.

U.S. home prices rose at a 15 percent annual rate and sales reached an all-time high during the third quarter, recent National Association of Realtors data showed. The median price of an existing single-family home rose to $215,900 from $188,200 a year earlier.

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.

Not all homebuilders expect demand to drop off. Fort Worth, Texas-based D.R. Horton Inc., whose homes cost less than the national average, raised its profit forecast for next year after recording "strong" sales across the country last quarter.

"We do not see a lot of weakness," Chief Executive Officer Donald J. Tomnitz said in a conference call last week.

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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