Wednesday, December 15, 2004

U.S. MBA's Mortgage Applications Index Fell 1% Last Week

Dec. 15 (Bloomberg) -- U.S. mortgage applications decreased last week as refinancing declined for a fourth time and fewer people bought homes, a private group's survey found.

The Mortgage Bankers Association's applications index dropped 1 percent to 689 from 696.2 the prior week. The gauge of applications to refinance existing mortgages fell 2 percent to 1852.4 from 1890.6.

Refinancing was a source of strength for consumer purchases in 2002 and 2003. The decline suggests any acceleration in spending in coming months is that much more dependent on job and income growth. Thirty-year fixed mortgage rates that are lower than they were last year keep supporting housing and the economy.

``The housing market's strength owes a lot to the easy financing terms available,'' said Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi in New York. ``Interest rates are still very close to 40-year lows and that's creating quite a boom in the housing market.''

The mortgage group's gauge of applications to purchase homes fell 0.4 percent to 488.9, still close to the record of 501.6 reached in January.

The average rate on the 30-year fixed mortgage declined to 5.65 percent in the week ending Dec. 10, within a percentage point of last year's record low. Last year at this time, the rate was 5.71 percent. The average 30-year rate fell from 5.68 percent the previous week. It reached a record low of 4.99 percent in June 2003.

At the current rate, the cost for each $100,000 borrowed is $577.24 a month. When mortgage rates were their lowest, monthly borrowing costs were $536.21.

Federal Reserve

Mortgage rates may be slow to rise after yesterday's decision by the Federal Reserve to raise the nation's benchmark lending rate, according to Bob Moulton, president of Manhasset, New York- based Americana Mortgage Group. Fed policy makers raised the federal funds rate a quarter point to 2.25 percent.

The Fed retained its message about inflation being under control, prompting more investors to purchase government securities, Moulton said. The yield on the 4 1/4 percent note maturing in November 2014 held at 4.12 percent, matching a low not seen since early November.

The average rate on a 15-year mortgage fell to 5.04 percent from 5.09 percent the week before. Adjustable rate mortgages, which accounted for 34.2 percent of total loan applications, rose to 4.1 percent from 4.08 percent. Refinancing's share of total applications rose to 46 percent from 45.6 percent the week before.

The Standard and Poor's Supercomposite Homebuilding Index of shares of 15 homebuilders has increased 33 percent over the past year.

Employment

Home sales have helped raise the number of U.S. construction workers to a record 1.67 million in November, a 5.6 percent increase over the same month a year ago, according to the Bureau of Labor Statistics. Financing company employment has also increased.

Countrywide Financial Corp., the biggest U.S. mortgage lender, announced plans yesterday to add 7,500 new jobs in Texas in the next six years. The Calabasas, California-based company already has expanded its workforce 23 percent this year to 42,000 employees.

The National Association of Realtors raised its forecast on Dec. 7 for homes sales and housing starts. The Washington-based association predicted sales would reach a record 7.76 million this year and housing starts to rise to the highest level since 1978 at 1.95 million. Last year, a record 7.19 million homes were sold.

``The housing industry will be just fine so long as the 30- year mortgage rate stays in single digits,'' said Donald Tomnitz, chief executive of D.R. Horton Inc., in an interview from Arlington, Texas. ``As long as there's adequate financing to fund all these houses we're going to be in great shape.

Prices

D.R. Horton is the largest U.S. homebuilder by stock market value.

Home resale prices rose 13 percent in the third quarter against the same period a year ago, the biggest quarterly increase since 1979, according to the U.S. Office of Federal Housing Enterprise Oversight.

The average resale price of a single-family house in the U.S. has risen 28 percent in the three years that ended September 30. Wages are up 8.8 percent during the same period, according to figures from the Labor Department's employment cost index.

Rising prices don't appear to be significantly slowing demand, as some economists had feared, said David Lereah, chief economist for the National Association of Realtors.

``It's unbelievable,'' Lereah said. ``People are just scratching their heads and saying this cannot continue. What I would say is that the healthy real estate expansion will continue.''

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