By Lynn Adler
NEW YORK, June 10 Spiking U.S. mortgage rates
drove down total home loan applications last week as demand for
refinancing shriveled to the lowest level since November, the
Mortgage Bankers Association said on Wednesday.
The swift rate rise crimps affordability, likely cutting
offer prices on home sales and prolonging a housing turnaround.
Borrowing costs have soared as bond yields have risen, even
as the Federal Reserve has sopped up hundreds of billions of
dollars in bonds to keep rates low and stimulate the housing
The average 30-year fixed mortgage rate jumped 0.32
percentage point in the June 5 week to 5.57 percent. That was
nearly a full point, about 100 basis points, above the record
low rate of 4.61 percent in March, the trade group said.
"Clearly, 50 or 100 basis points more on mortgage rates is
enough to matter. It effects what people can afford to buy,"
said Bill Cheney, chief economist at John Hancock Financial
Services in Boston.
The vast majority of mortgage activity this year has been
from homeowners cutting costs with new loans at rock-bottom
The Mortgage Bankers Association's seasonally adjusted
index of total applications dropped 7.2 percent to a four-month
low of 611.0 in the latest week.
The refinancing index slumped 11.8 percent to a nearly
seven-month low of 2,605.7 last week, and refinancing accounted
for about 59 percent of all applications, the lowest share
since November. As recently as April, refinancings accounted
for almost 80 percent of all home loan applications.
Purchasers have been slower to act in the current housing
market, with some waiting in hopes that prices will fall
further and others paralyzed by unemployment or wage cuts.
"The more you get people making low-ball offers because
they can't afford to offer any more, the less willing
conventional sellers are to sell at all," Cheney said. "It
tends to freeze the housing market for a bit longer."
Demand for loans to buy homes was little changed last week,
rising 1.1 percent to 270.7, having basically been stuck in
neutral throughout the important spring sales season.
"I'm not optimistic for 2009 or 2010," Mark Goldman, real
estate lecturer at San Diego State University and mortgage
broker, said on Tuesday.
The swift percentage point rise in mortgage rates cuts the
purchasing power of a borrower by about 10 percent, he
"Employment is still bad, wages are still low, interest
rates are up. That's going to hurt the housing market," Goldman
The number of U.S. jobs cut in May was the lowest level
since September, but the unemployment rate rose to 9.4 percent,
the highest since July 1983.
First-time buyers taking advantage of new tax credits and
investors snapping up foreclosed properties at distressed
levels have in recent months buttressed the hardest-hit housing
market since the Great Depression.
But borrowers will foreclose in record numbers at least for
another year, several industry sources, including the Mortgage
Bankers Association, predict. Those homes will add to the
already large supply of unsold properties and will keep
Home prices on a national level have tumbled more than 32
percent from the peak three years ago, according to Standard &
"Prices continue to erode on a national level, and with the
rest of the economy not doing well either and the jobless rate
constantly increasing, we don't see a recovery in housing on a
national level coming soon," Kevin Marshall, president of Clear
Capital, based in Truckee, California, said this week.
"That doesn't mean there aren't values to be had out
there," he added.
(Editing by Theodore d'Afflisio)