January 16, 2008 / 12:05 PM / 11 years ago

Home loan demand surges to near four-year high

NEW YORK (Reuters) - U.S. mortgage applications surged last week, with demand hitting its highest in nearly four years as interest rates plunged, an industry group said on Wednesday.

Construction workers put up second story framing as they build homes in Carlsbad, California November 17, 2005. REUTERS/Mike Blake

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended January 11 surged 28.4 percent to 906.4, its highest since the week ended April 2, 2004.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.62 percent, down 0.11 percentage point from the previous week, and its lowest since the week ended July 1, 2005, when they stood at 5.58 percent.

Interest rates were below year-ago levels at 6.19 percent.

Douglas Duncan, chief economist at the MBA, said the robust data offers a glimmer of hope for housing.

“When consumers see an opportunity, no matter how pessimistic they might be, they take it,” he said. “It will improve the underlying state of the industry and the longer rates stay down, the more people will take advantage of the opportunity, so that is a good thing.”

Mortgage rates have fallen along with U.S. Treasury yields. The benchmark 10-year U.S. Treasury note US10YT=RR yield fell below 3.68 percent on Tuesday, its lowest since July 2003 as stocks plunged and expectations of aggressive interest rate cuts from the Federal Reserve rose. Yields move inversely to price.

Dean Maki, chief U.S. economist at Barclays Capital in New York, said the MBA’s data is flawed and dismissed its ability to gauge the overall state of the housing market now.

“It has lost some predictive power,” he said. “There was once a tight correlation between the purchase index and actual sales, but that has broken down.”

“The data may not be fully capturing some of the developments outside of the conforming mortgage market,” he said.

The MBA’s data has been very volatile recently, which is probably reflecting seasonal distortions at the turn of the year, according to Michelle Meyer, an economist at Lehman Brothers in New York.

“We continue to stress that mortgage applications are a poor predictor of future home sales, largely because the survey includes only retail lenders and does not account for rejected applications,” she said in commentary published Wednesday.

Overall mortgage applications last week were 35.9 percent above their year-ago level. The four-week moving average of mortgage applications, which smoothes the volatile weekly figures, was up 10.1 percent to 687.5.

Fixed 15-year mortgage rates averaged 5.07 percent, down from 5.21 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) decreased to 5.77 percent from 6.04 percent.


The MBA’s seasonally adjusted purchase index, widely considered a timely gauge of new home sales, jumped 11.4 percent to 461.2, its highest since the week ended December 7, 2007. The index came in above its year-earlier level of 439.7, a rise of 4.9 percent.

Demand for home loan refinancing surged last week as the group’s seasonally adjusted index of refinancing applications skyrocketed 43.4 percent to 3,575.5, its highest since the week ended April 2, 2004. The index was up 74.8 percent from its year-ago level of 2,045.8.

The refinance share of applications increased to 62.7 percent from 57.7 percent the previous week. The ARM share of activity edged down to 9.2 percent from 9.3 percent.

“This time of the year you always have to be careful about weather patterns and other factors,” Duncan said. “I really think this is, at least in some instances, evidence that with mortgage rates dropping and house prices having leveled off or fallen in some places, there is an improvement in affordability underway.”

This week holds other key data gauging the state of the hard-hit U.S. housing market.

The National Association of Home Builders will release its January NAHB/Wells Fargo Housing Market Index on Wednesday and the Commerce Department will release data on December housing starts on Thursday.

Reporting by Julie Haviv, Editing by Chizu Nomiyama

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