Mortgage applications rise but home sales tepid

By Lynn Adler

NEW YORK (Reuters) - Mortgage applications rose last week after five straight weekly declines, but March home sales were weak and tighter lending standards suggest more of these loan requests will be turned down, economists say.

The Mortgage Bankers Association on Wednesday said its mortgage applications index climbed by a seasonally adjusted 3.6 percent in the week ended April 20 to 653.3, its highest level since the week ended March 23 when it hit 671.0.

"The problem, particularly in the West and the South, is where in some of the bubble markets a whole pile of mortgages were written and a whole pile of houses were built that shouldn't have been," says David Kelly, economic advisor at Putnam Investments in Boston. "Now we're seeing the consequences."

Rising defaults on mortgages made to borrowers with sketchy credit have pushed some lenders out of business while others have become more restrictive in providing loans.

"The mortgage application numbers themselves look fine, but there is something of a break between the trend in mortgage applications and the sales of houses," Kelly says. "I do think that may reflect some applications being turned down."

Sales of new houses rose 2.6 percent in March and median home prices climbed, the Commerce Department said in a separate report on Wednesday. The growth was below forecasts and February sales were revised down, however, indicating the housing slump is intact.

Data on Tuesday showed existing home sales in March suffered their biggest monthly drop in over 18 years, sliding 8.4 percent, and national median home prices fell for the eighth straight month. Home resales represent 85 percent of the housing market.

Some gauges, including loan applications, suggest that sales may be near this cycle's lows after falling nearly 18 percent from their peak, Kelly says. "But I don't think we'll see a big revival in housing any time soon."