Mortgage applications in the U.S. dropped last week as fewer Americans sought to purchase a home even as mortgage rates fell.
The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan fell 7.1 percent to 796.8 from the prior week’s eight-month high of 857.7. The group’s refinance index slipped 0.9 percent, while the purchase index plunged 17 percent.
Declining household wealth and the deepening credit crunch are making it harder to buy a home or refinance a mortgage. The three-year housing recession is likely to extend well into 2009 as property values continue to fall.
“Mortgage applications for purchases remain subdued,” Anna Piretti, a senior economist at BNP Paribas in New York, said before the report. “Tighter credit standards suggest actual lending remains constrained, weighing on sales.”
The refinancing gauge decreased to 3767.3 from 3802.8 the prior week, while the purchase index dropped to 298.1 from 361.1.
Mortgage applications surged 112 percent in late November after the Federal Reserve pledged to purchase up to $500 billion in so-called agency debt as well as up to $100 billion in direct debt of Fannie Mae and Freddie Mac, the world’s two largest mortgage buyers, and Federal Home Loan Banks.
The Fed’s plan has sent mortgage rates tumbling. The average rate on a 30-year fixed-rate loan dropped to 5.45 percent last week, the lowest level since March 2004, from 5.47 percent the prior week. At the current rate, monthly borrowing costs for each $100,000 of a loan would be about $564.66, down $72 from three months ago.
More Refinancing
As more homeowners seek to switch out of their adjustable- rate loans, the share of applicants seeking to refinance mortgages increased to 76.1 percent from 69.1 percent of total applications in the prior week.
Today’s report also showed the average rate on a 15-year fixed mortgage decreased to 5.09 percent, the lowest since February, from 5.13 percent. The rate on a one-year adjustable mortgage climbed to 6.76 percent from 6.61 percent. read more
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