Higher rates lead to this year’s biggest slowdown in refinancing and new home purchases
The number of mortgage applications in the United States fell last week by the most this year as higher lending rates led to a slump in refinancing.
The Mortgage Bankers Association’s (MBA) index declined 16.5 per cent in the week ended Nov 26, figures from the Washington- based group showed yesterday. The gauge of refinancing fell 21.6 per cent. The measure of purchases climbed 1.1 per cent.
The average rate on a 30-year fixed mortgage rose to the highest level since August, an increase that follows data that showed the economy gaining strength at the end of the year.
With mounting foreclosures adding to inventory and unemployment near 10 per cent, a sustained improvement in home sales and construction will take time to develop.
“Mortgage rates are higher than they were a few weeks ago, so refinancing and new purchase mortgage volumes are going to be slow, probably until we get into the new year,” said Mr Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ before the report.
The share of applicants seeking to refinance a loan fell to 74.9 per cent last week from 78.6 per cent in the week before, the MBA figures showed.
The average rate on a 30-year fixed mortgage increased to 4.56 per cent from 4.50 per cent the prior week. Borrowing costs have been rising since reaching 4.21 per cent during the week ended Oct 8, the lowest in records going back to 1990.
At the current 30-year rate, monthly payments for each US$100,000 ($131,150) of a loan would be about US$510.26, or US$14 less than a year ago when the rate was 4.79 per cent.
The average rate on a 15-year fixed mortgage rose to 3.91 per cent from 3.83 per cent, and the rate on a one-year adjustable mortgage declined to 6.81 per cent from 7.09 per cent.
Sales of existing homes, which now make up more than 90 per cent of the market, fell more than forecast in October, as foreclosure moratoriums and a lack of credit disrupted real estate, figures from the National Association of Realtors showed last week. In July, sales ran at the weakest pace in a decade’s worth of record-keeping by the group.
Atlanta-based Beazer Homes USA, which builds and sells entry-level homes in the South, remains “cautious” in its outlook.
“Sustained high unemployment levels and the overhang of foreclosures make it very difficult to predict when and to what extent the housing market will recover,” said Beazer chief executive Ian J McCarthy.
Source : Today – 3 Dec 2010