Thursday, November 25, 2004

U.S. mortgage applications fell last week--MBA

By Dean Patterson

NEW YORK, Nov 23 (Reuters) - New applications for U.S. home mortgages fell last week, even as mortgage rates edged downward, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage activity fell 5.7 percent to 715.0 in the week ended Nov. 19, more than offsetting a 4.3 percent gain the prior week.

Economists said the MBA report shows the housing market will likely remain strong. They predicted a gradual slowing in the market next year and rising mortgage rates.

"The numbers are down a little but remain strong," said David Berson, chief economist of Fannie Mae in Washington, D.C. "These numbers don't indicate any near-term fall off in activity."

Rates on fixed 30-year mortgages averaged 5.64 percent last week, excluding fees, down from 5.70 percent the prior week.

The MBA's seasonally adjusted index of refinancing applications fell 8.3 percent to 2179.3 after a 10.6 percent advance the prior week.

The association's purchase index, a gauge of loan requests for home purchases, dropped 3.5 percent last week to 463.3, building on declines of the two prior weeks.

The refinancing share of mortgage activity remained relatively high in the latest week at 48.4 percent, from 48.6 percent the prior week, the MBA said.

The share of adjustable-rate mortgages was also stable at 34 percent of total applications, unchanged from the prior week.

Fixed-rate 15-year mortgage rates were unchanged last week. However, adjustable-rate mortgages rose. The MBA said one-year adjustable rate mortgages climbed 24 basis points to 4.13 percent, excluding fees.

Berson predicted a 5 percent dip in home sales next year and 30-year fixed-rate mortgages at about 6.25 percent at the end of 2005.

Ken Mayland, president of Clearview Economics LLC in Pepper Pike, Ohio, predicted a similar decline in housing, but with a sharper rise in mortgage rates to about 6.83 percent by the end of next year.

"I think the peak in housing has been seen, but we are still seeing exceedingly strong numbers," Mayland said.

Some economists have voiced concern that so many homeowners have shifted into adjustable-rate mortgages in recent years, putting their finances at risk to a spike in interest rates.

Both Berson and Mayland said it is unlikely a problem because homeowners are more inclined to refinance into a more favorable structure when times change.

In addition, they said, a big share of adjustable-rate mortgages are hybrids with fixed rates for a set period of time, such as three to seven years, further reducing the risk.

"Thanks to refinancing, millions of households have locked in four-decade-low mortgage rates," Mayland said.

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