Mortgage applications up in week, housing limps

NEW YORK (Reuters) - Demand for applications to buy U.S. homes and refinance existing mortgages rose last week, but a housing recovery is being squelched as consumers face more difficulty getting loans approved, analysts say.

The Mortgage Bankers Association said its seasonally adjusted index of home loan application activity increased 2.4 percent to 652.0 in the week ended October 5, after falling the two prior weeks.

"We continue to think that home buying will remain weak for some time due to affordability problems related to tighter lending standards," said Nancy Vanden Houten, analyst at Stone & McCarthy Research Associates in Princeton, New Jersey. "We don't think mortgage rates or home prices have declined enough to offset a tightening in lending conditions."

The mortgage trade group's index has been fairly range-bound in recent weeks, after slipping to about 607 both in February and again in July, and rising as high as about 691 in March.

A rise in applications probably does not capture the true home sales picture, most economists add.

"Anecdotal evidence, such as reports of canceled loan commitments, suggest that a higher than average share of mortgage applications may not be getting approved," Vanden Houten added,

For the eight straight month, the National Association of Realtors has downshifted its outlook for home sales. On Wednesday, it shaved its existing home sales forecast to 5.78 million this year from last month's prediction of 5.92 million.

The national median price for existing homes should drop by 1.3 percent this year to $219,000, a smaller slide than the 1.7 percent slide the Realtors group estimated last month.

Housing problems have had little impact on consumption so far, but "further and more widespread deterioration in housing prices would increase the risk of a more adverse impact on consumption," Federal Reserve Bank of Boston President Eric Rosengren said on Wednesday.

Former Fed Chief Alan Greenspan said home prices would almost certainly drop and the slump will eventually prompt consumers to cut back on spending.

MORTGAGE RATES MIXED

The Mortgage Bankers Association's gauge of home purchase applications gained 2.1 percent to 420.2, and its refinancing measure rose 2.7 percent to 2,003.2 on a seasonally adjusted basis last week.

Homeowners are scrambling to refinance adjustable mortgages before they reset to much higher interest rates.

Refinancing requests represented 46.2 percent of total applications last week, up slightly from 46.0 the prior week, the MBA said. Adjustable-rate mortgages accounted for 13.6 percent of the total, down from 13.8 percent.

Mortgage rates were mixed last week, the MBA said.

Average 30-year fixed mortgage rates increased 0.08 percentage point to 6.40 percent last week, which is 0.13 point higher than the same week a year ago, according to the trade group.

Among shorter-term loan products, the one-year adjustable-rate mortgage rate dipped 0.05 percentage point last week to 6.15 percent, up 0.27 point from the same week a year earlier.

(Additional reporting by Patrick Rucker in Washington; Tamawa Kadoya in Portland, Maine; and Pedro Nicolaci da Costa in New York)