Mortgage Applications Index Dropped 14 percent week July 25 2008

July 30 2008 - Mortgage applications in the U.S. decreased 14.1 percent last week, led by a decline in refinancing.

The Mortgage Bankers Association’s index of applications to buy a home or refinance a loan fell to 420.8 in the week ended July 25, the lowest level since December 2000, from 489.6 the prior week. The group’s refinancing gauge, also the lowest since the end of 2000, plummeted 23 percent.

Tighter lending standards and falling property values are keeping prospective buyers out of the market and may extend the three-year housing slump. The decline in house prices, in turn, is making it difficult for homeowners to refinance their mortgages.

“House prices will continue to drop because inventories of unsold homes remain high,” Patrick Newport, an economist at Global Insight Inc. in Lexington, Massachusetts, said before the report. “Recent progress on reducing inventories has been modest.”

The group’s refinancing gauge fell to 1074.4 from 1392.7. The purchase index decreased 7.8 percent 309.5, the lowest level since February 2003.

The share of applicants seeking refinancing fell to 35.2 percent, the lowest since July 2006, from 39.4 percent the prior week.

The average rate on a 30-year fixed-rate loan fell to 6.46 percent last week from 6.58 percent, today’s mortgage bankers report showed. At the current rate, monthly borrowing costs for each $100,000 of a loan would be $629, up $61 from the low this year reached in January.

Mortgage Rates

The average rate on a 15-year fixed mortgage decreased to 5.98 percent from 6.10 percent. The rate on a one-year adjustable loan rose to 7.25 percent, the highest level since December 2000, from 7.16 percent.

Rising foreclosure rates are putting more homes on the market and encouraging potential buyers to wait for deeper price reductions. One in every 171 households was in some stage of the foreclosure process, an increase of 121 percent from a year earlier, RealtyTrac Inc., a real estate database firm, said last week in a statement.

Congress last week passed legislation designed to bolster market confidence in Fannie Mae and Freddie Mac, the largest U.S. purchasers of mortgages, while stemming foreclosures for 400,000 homeowners. President George W. Bush is expected to sign the bill into law this week.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week since 1990, covers about half of all U.S. retail residential mortgage originations.

U.S. MBA’s Mortgage Applications Index Dropped 14.1% Last Week
by Timothy R. Homan | Bloomberg