Mortgage Applications in U.S. Post Biggest Drop of 2010

The number of U.S. mortgage applications dropped last week by the most this year as an increase in borrowing costs caused refinancing to plunge.

The Mortgage Bankers Association’s index fell 14 percent in the week ended Nov. 12, the Washington-based group said today. Refinancing plummeted 17 percent, the most since early April, and purchase applications were down 5 percent.

The increase in mortgage rates comes as data have shown the economic recovery picked up at the start of the fourth quarter, raising concern the Federal Reserve’s second round of asset purchases that began last week was unnecessary. Unemployment near 10 percent and state probes into lenders’ foreclosure procedures are other reasons potential buyers may hold off on home purchases.

“Yields in the market have moved up, and if the mortgage refinancing window has not shut, it soon will,” Chris Rupkey, chief financial economist at Bank of Tokyo-Mitsubishi UFJ Ltd. in New York, said before the report. “Mortgage rates are moving up sharply with Treasury yields. Consumers are still cautious on the outlook for the economy, so they’re hesitating to buy the biggest of big-ticket items, the family house.”

Banks were also closed one day last week for the Veterans Day holiday on Nov. 11, which may have contributed to the drop in applications. Holidays make it difficult to adjust the data for seasonal variations.

The average rate on a 30-year fixed mortgage rose to 4.46 percent from 4.28 percent. The 4.21 percent rate reported for the week ended Oct. 8 was the lowest in records going back to 1990.

Monthly Payments

At the current lending rate, monthly payments for each $100,000 of a loan would be about $504, or $22 less than a year ago when the rate was 4.82 percent.

The average rate on a 15-year fixed loan rose to 3.87 percent from 3.64 percent, and the rate on a one-year adjustable mortgage increased to 7.11 percent from 7.08 percent.

The yield on the benchmark 10-year Treasury note climbed to 2.79 percent at the end of the day on Nov. 12 from 2.53 percent the prior week. On Nov. 5, the Labor Department reported the employers added 151,000 workers to payrolls, more than double the median forecast of economists surveyed.

The Fed on Nov. 13 began buying the first allotment of what it said earlier this month would be $600 billion in asset purchases through June. Treasuries rallied beginning in September after Fed officials began signaling such purchases were likely.

Less Refinancing

The share of applicants seeking to refinance fell to 80.3 percent from 81.7 percent the prior week, the Mortgage Bankers Association said.

Another report today may show work began on 598,000 homes at an annual pace in October, down from 610,000 in September, according to the median forecast of economists surveyed before a Commerce Department report at 8:30 a.m. today.

D.R. Horton Inc., the second-largest U.S. homebuilder by revenue, expects 2011 to be “challenging” for the industry as consumer confidence and employment remain weak, Chief Executive Officer Donald Tomnitz said Nov. 12.

The company’s home sales and closing volume probably will fall from this year, Tomnitz said on an earnings conference call. The 2011 spring selling season, typically the strongest time of year for builders, may fail to bring the traditional boost in demand, he said.

“I don’t see much on the horizon that would give anybody a great degree of comfort on the financial condition of the country,” Tomnitz said. “I just don’t see a lot of hope for a great spring market.”

To contact the reporter on this story: Bob Willis in Washington at bwillis@bloomberg.net

To contact the editor responsible for this story: Christopher Wellisz at cwellisz@bloomberg.net

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