Mortgage market rebounds as trade gap narrows

By Burton Frierson

NEW YORK (Reuters) - The moribund U.S. mortgage market showed signs of life last week even before the Fed announced unconventional steps to revive the economy, while a key trade measure improved in the third quarter.

The Mortgage Bankers Association said U.S. mortgage applications climbed last week as 30-year mortgage rates fell near the lowest on their records, rare signs of hope after a year-long recession caused by a bursting housing bubble.

Other data on Wednesday showed the current account deficit, the broadest measure of the U.S. trade shortfall with the rest of the world, narrowed more than expected in the third quarter.

The data came a day after the Federal Reserve cut short-term interest rates to near zero. This unprecedented step sent the dollar to 13-1/2-year lows against the Japanese yen but also brought down mortgage rates further.

The narrower current account deficit may assuage some concerns about the dollar, which has come under intense pressure after the Fed's decision, but it was also evidence of the extremely poor state of the world's largest economy.

"Overall, the deficit is still huge, 4.8 percent of gross domestic product, but it should continue to decline as the crunch in import demand offsets the dramatic downshift in exports," said Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York.

The Fed cut its target for overnight interest rates to a record-low zero to 0.25 percent on Tuesday and said it would employ "all available tools" to dispel a recession that is on track to be the longest since the Great Depression.

The Fed move weighed heavier on financial markets than the data. The dollar tumbled against broad range of currencies .DXY. The euro was up about 1.7 percent against the dollar.

U.S. stocks were down slightly due to ongoing worries about the economy and weak financial results.

Long-term U.S. government debt prices rallied as investors scrambled for returns after the Fed radically altered the interest rate environment by pushing short-term rates to rock bottom.

Fresh data showed the mortgage market continued the momentum supplied by the Fed. Average interest rates on a 30-year fixed mortgage plunged to 4.70 percent from 5.01 percent on Tuesday, according to Zillow Mortgage Marketplace.

Additionally, requests for refinancing are up 230 percent month-over-month, Zillow said. Zillow was not alone in observing a drop in mortgage rates.

Mortgage rates are on track to end the week at the lowest level in at least 46 years, according to Keith Gumbinger, vice president of HSH, a mortgage information provider in Pompton Plains, New Jersey.

Any good cheer in mortgages was tempered by troubling news elsewhere in the property market. The U.S. commercial real estate market will continue to decline deep into next year, the National Association of Realtors said.

"QUITE A BOON"