U.S. mortgage applications climb, rates at fresh low

Houses for sale in various states of completion are seen in Golden, Colorado, June 25, 2007.

NEW YORK (Reuters) - U.S. mortgage rates set fresh record lows last week, fostering demand for refinancing that drove home loan applications to the highest level since mid-January, data from the Mortgage Bankers Association showed on Wednesday.

The pace of the rise ebbed from the prior three weeks, when homeowners in droves raced to refinance as average 30-year mortgage rates sank by a half percentage point. Last week, however, the rate dipped by just 0.02 point to 4.61 percent.

All eyes are on the housing market to see how soon a spate of government interventions stabilizes the deepest slump since the Great Depression, and thus energizes the U.S. economy.

The Mortgage Bankers Association's applications index, which includes both refi and purchase requests, rose by a seasonally adjusted 3 percent in the week ending March 27 to 1,194.4.

The purchase applications index was little changed, rising 0.1 percent to 268.0, while the refinancing gauge gained 3.7 percent to 6,600.1. This is up sharply from 2,722.7 as recently as early February.

"The likelihood is the trend will continue with more refis than actual purchases," said Daniel Penrod, industry analyst for the California Credit Union League in Rancho Cucamonga, California.

"Despite the perfect storm for a buyer of home prices continuing double-digit declines and interest rates at all-time lows, the missing ingredient is the financing," he said on Tuesday. "Institutions still are very hesitant to lend, or they've ratcheted up their standards so hard that people are having a tough time meeting them."

Affordability by some measures is at a record high.

U.S. home prices have been slashed by around 30 percent from their mid-2006 peak, January indexes from Standard & Poor's/Case-Shiller on Tuesday showed.

Whether purchasers come to the table en masse will be clearer as the important spring selling season takes root. Home buyers, who in many states hibernate during the winter months, start to shop again in earnest.

This time, they'll find bargain basement prices and mortgage rates. As recently as October, mortgage rates had reached nearly 6-1/2 percent.

There are also new incentives, such as an $8,000 federal tax credit for first-time buyers and some state credits as well.

First-time buyers are a critical puzzle piece for a housing turnaround to come together, as these consumers don't have houses to unload before purchasing.

Walter Molony, spokesman for the National Association of Realtors, said that 41 percent of home buyers in 2008 were first-time purchasers. In February 2009, the share had risen to about 50 percent.

"The market heals from the bottom up," he said in a recent interview. "That's what provides liquidity to help people to sell their existing homes and to trade up and ultimately buy a bigger home or perhaps a new home."

Of concern is the huge oversupply of unsold homes that is being compounded by record foreclosures. The massive inventory has kept depressing prices and some buyers waiting for deeper discounts.

At Century 21 Real Estate, where the second annual open house month starts on April 1, chief executive Thomas Kunz stressed that some markets are starting to see multiple offers that lead to stability.

"No consumer, unless they absolutely luck out, is going to hit the bottom of the market," he said in an interview on Tuesday.

The wild card is employment.

Homes may be more affordable than ever but if potential buyers face job loss, the cost becomes less relevant.

Unemployment in the United States has leaped to the highest in a quarter century and widely expected to rise further.

"People that are afraid for their jobs are not going to make those purchases and people that are losing their jobs can't get the loans," Penrod said.