Mortgage Applications in U.S. Fall as Refinancing Declines on Higher Rates

The number of mortgage applications in the U.S. fell last week as higher lending rates led to a fourth straight decline in refinancing.

The Mortgage Bankers Association’s index decreased 0.9 percent in the week ended Dec. 3, figures from the Washington- based group showed today. Refinancing fell 1.4 percent, while purchases climbed 1.8 percent, the third straight increase.

The average rate on a 30-year fixed mortgage rose to the highest level since July as the economy showed signs of improving heading into 2011. Home-purchase applications rose for the sixth week in the last seven, indicating the housing market may be stabilizing even as foreclosures mount and unemployment hovers near a 26-year high.

“The housing market continues to bounce along this fragile bottom,” Neil Dutta, an economist at Bank of America Merrill Lynch Global Research, said before the report. The purchase index is down 13 percent from the same time last year.

The average rate on a 30-year fixed mortgage rose to 4.66 percent, the highest since the week ended July 23, from 4.56 percent. Borrowing costs have been rising since reaching 4.21 percent during the week ended Oct. 8, the lowest in records going back to 1990.

At the current 30-year rate, monthly payments for each $100,000 of a loan would be about $516.24, or $14 less than a year ago when the rate was 4.89 percent.

Adjustable Rates

The average rate on a 15-year fixed mortgage rose to 3.98 percent from 3.91 percent, and the rate on a one-year adjustable mortgage increased to 7.07 percent from 6.81 percent.

Borrowing costs may continue to increase. Yields on Fannie Mae and Freddie Mac mortgage securities that guide home-loan rates jumped to their highest level in almost six months yesterday after President Barack Obama agreed to extend tax cuts for two years, as well as reduce payroll taxes and extend emergency unemployment benefits.

Higher rates may be prompting some buyers to sign contracts. Toll Brothers Inc., the largest U.S. luxury-home builder, saw deposits increase 10 percent in the final two weeks of November compared with a year earlier as mortgage rates began to climb, Chairman Robert Toll said Dec. 2.

“In the last two weeks, interest rates have been going up,” Toll said yesterday during the company’s earnings call. “So finally there is no longer a reason to sit and wait.”

Toll expects to sell between 2,100 and 2,900 homes in fiscal 2011, compared with 2,642 units in the recently ended year.

Americans still aren’t optimistic. Almost six in 10 U.S. adults say a housing recovery is at least two years away, according to a survey by Trulia Inc. and RealtyTrac Inc. released Dec. 7.

To contact the reporter on this story: Courtney Schlisserman in Washington cschlisserma@bloomberg.net

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

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