NEW YORK (Reuters) - U.S. mortgage applications sank last week to the lowest level since the end of last year despite falling borrowing costs, an industry trade group said on Thursday.
The Mortgage Bankers Association’s seasonally adjusted mortgage application index fell 7.6 percent in the week ended December 21 to 603.8 -- its lowest reading since falling to 575.6 in the December 29, 2006 week.
The MBA’s weekly indexes have been exaggerated on the high side much of the year. Borrowers facing stricter loan standards often apply numerous times in search of getting one request approved.
The applications slump this week and last, however, appears to more closely reflect the status of ailing housing sales.
Even after the two-week plunge which followed a steep increase in the last week of November, applications are just slightly weaker over the past month when accounting for volatility, notes Michelle Meyer, economist at Lehman Brothers.
“I wouldn’t look at the levels per se because they don’t correlate well with home sales,” she said. “I would say the housing shock is about half-way over, I think we still have a big correction ahead of us.”
Demand for both home purchase and refinancing applications dropped last week, as they did the prior week, when total loan requests slid 19.5 percent while interest rates climbed.
Loan requests for home purchases in the latest week dropped 6.6 percent to 394.5, a low since mid-February, according to the trade group.
“This represents one of the lowest figures in the past year, remarkable for a series that should have upward bias given the consolidation in the industry and the incentive to file multiple applications when credit availability tightens up,” Goldman Sachs analysts wrote on Thursday.
The MBA’s seasonally adjusted refinancing applications index fell 8.5 percent to 1,915.3 last week, its weakest point since early September.
“Maybe late in 2008 we’ll see some markets beginning to recover,” said Gregory Miller, chief economist at SunTrust Banks in Atlanta, on Wednesday prior to the MBA report.
“But for the nation as a whole, I think the end of 2008 is probably as optimistic as one would want to get,” he said. “More likely, we’ll be well into 2009 before we start describing this housing cycle as ‘in recovery’”.
Home prices posted their largest annual drop on record in October, according to the Standard & Poor‘s/Case-Shiller national index on Wednesday.
Prices will have to drop considerably more before the industry makes meaningful headway in selling off an unwieldy supply of unsold homes, many analysts contend.
“Tighter mortgage lending standards, falling consumer confidence and a sharp drop in speculative purchases have all taken bites out of buyer demand, forcing sellers to adjust by cutting prices,” said Mike Larson, real estate analyst at Weiss Research Inc in Jupiter, Florida, after the S&P/Case-Shiller report was released. “There’s no reason to expect an imminent turnaround.”
Home applications trailed off last week despite falling mortgage rates. One-year adjustable mortgages tumbled 45 basis points in the week to 6.03 percent, the lowest since mid-November.
Fixed 30-year mortgage rates averaged 6.10 percent last week, down 8 basis points, the association said.
Snapshots of November’s new home sales will be reported by the Commerce Department on Friday and of existing house sales by the National Association of Realtors on Monday.
New home sales likely fell to an annual rate of 720,000 last month from 728,000 in October, based on a Reuters poll. Existing home sales are seen unchanged at an annual 4.97 million pace, the lowest since the NAR began tracking single-family and condominium sales jointly in 1999.
Reporting by Lynn Adler, editing by Gary Crosse