By Julie Haviv
NEW YORK Oct 7 U.S. mortgage applications
surged last week to their highest since mid-May as consumers
sought to take advantage of the lowest interest rates in
months, data from an industry group showed on Wednesday.
The Mortgage Bankers Association said rates on 30-year
fixed-rate mortgages, the most widely used loan, were below 5
percent for a third straight week, reaching a four-month low.
Demand for home refinancing loans was the highest since
Applications to buy a home, a tentative early indicator of
sales, climbed to the highest since early January. The trend
bodes well for the hard-hit U.S. housing market, which has been
showing signs of stabilization.
The MBA said its seasonally adjusted index of mortgage
applications USMGM=ECI, which includes both purchase and
refinance loans, for the week to Oct. 2 increased 16.4 percent
to 756.3, the highest since the week ended May 22.
"The residential housing market appears to be stabilizing
due to lower mortgage rates," said Alan Rosenbaum, president of
Guardhill Financial, a New York-based mortgage banker and
"The affordability factor, which takes into consideration
both price and mortgage rates, has been very positive of late,"
Low mortgage rates, high affordability and the federal
$8,000 tax credit for first-time home buyers -- part of the
government's $787 billion stimulus bill -- have helped pave the
way for stabilization.
But with the tax credit set to expire on Nov. 30 and
distressed properties making up a high proportion of sales, the
recent uptick may mask uncertainty over the long-term outlook.
Leif Thomsen, CEO of Mortgage Master in Walpole,
Massachusetts, said an extension of this tax credit is not only
warranted at this point of time, but critical.
"We are getting close to crunch time with the tax credit
and if we don't extend it whatever recovery we've had to this
point is going to fall flat on its face," he said.
"It is a very interesting and crucial time in America right
now for economic recovery and a lot will hinge on whether the
government decides to extend the tax credit or not," he said.
Rising unemployment is another obstacle. The U.S. Labor
Department last week said the jobless rate reached a 26-year
high of 9.8 percent in September.
Borrowing costs on 30-year fixed-rate mortgages, excluding
fees, averaged 4.89 percent, down 0.05 percentage point from
the previous week and the lowest since the week ended May 22.
The rate remained above the all-time low of 4.61 percent
set in the week ended March 27. The survey has been conducted
weekly since 1990. Nevertheless, interest rates were well below
the year-ago level of 5.99 percent.
The MBA's seasonally adjusted purchase index USMGPI=ECI
rose 13.2 percent to 306.1, its highest since the week to Jan.
2. The four-week moving average of mortgage applications, which
smooths the volatile weekly figures, was up 4.2 percent.
The MBA's seasonally adjusted index of refinancing
applications USMGR=ECI increased 18.2 percent to 3,377.1,
with the index at its highest since the week ended May 22.
The refinance share of applications rose to 66.3 percent
from 65.3 percent the previous week, but remained significantly
lower than the peak of 85.3 percent in the week to Jan. 9. The
adjustable-rate mortgage share of activity fell to 6.1 percent,
down from 6.2 percent the prior week.
The U.S. housing market has suffered the worst downturn
since the Great Depression and its impact has rippled through
the recession-hit economy, as well as the rest of the world.
The market, however, has shown signs of stabilization, with
sales rising and price declines moderating in many regions,
while home prices in some areas have risen.
Some analysts, however, say prices may fall again, with a
new wave of foreclosures in the pipeline.
Fixed 15-year mortgage rates averaged 4.32 percent, down
from 4.34 percent the previous week. Rates on one-year ARMs
increased to 6.56 percent from 6.40 percent.
(Editing by James Dalgleish)