U.S. Mortgage Applications Rise for Second Straight Week on Lower Rates

Mortgage applications in the U.S. increased for the second consecutive week as a drop in borrowing costs encouraged refinancing.

The Mortgage Bankers Association’s index of loan applications rose 2.2 percent in the week ended Jan. 7, figures from the Washington-based group showed today. Its refinancing gauge rose 4.9 percent, a second straight gain and the biggest since early November. Purchase applications fell.

Home purchase applications have fallen in four of the past five weeks, a sign the real estate market is hindered by unemployment that’s exceeded 9 percent for 20 months. Mounting foreclosures may put more pressure on property values and discourage construction, delaying any rebound in the industry that triggered the recession.

Purchases “remain at a level that suggests home sales are relatively moribund,” Steven Wood, president of Insight Economics LLC in Danville, California, said in a note to clients before the report. “Mortgage activity remains very sensitive to changes in mortgage rates.”

The group’s purchase index fell 3.7 percent last week after a drop of 0.8 percent the prior week. The refinancing gauge rose after a 3.9 percent gain.

The average rate on a 30-year fixed loan dropped to 4.78 percent last week from 4.82 percent the prior week. The rate reached 4.21 percent in October, the lowest since the group’s records began in 1990.

At the current 30-year rate, monthly payments for each $100,000 of a loan would be $523.46, or about $21 less than the same week the prior year, when the rate was 5.13 percent.

The average rate on a 15-year fixed mortgage declined to 4.15 percent, from 4.23 percent.

Share of Refinancing

The share of applicants seeking to refinance a loan rose to 72.1 percent last week from 71 percent the prior week.

Homebuilders struggling with competition from sales of distressed houses and decreased demand are trying to reduce expenses to protect earnings. KB Home, the Los Angeles-based homebuilder that targets first-time buyers, last week reported an unexpected fourth-quarter profit after cutting costs.

“Although our outlook is cautious, we are encouraged by our achievements in 2010,” Jeffrey Mezger, president and chief executive officer of KB Home said in a Jan. 7 statement. “Entering 2011, housing market conditions remain difficult.”

The Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.

To contact the reporter on this story: Shobhana Chandra in Washington at schandra1@bloomberg.net

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

Press spacebar to pause and continue. Press esc to stop.

Bloomberg reserves the right to remove comments but is under no obligation to do so, or to explain individual moderation decisions.

Please enable JavaScript to view the comments powered by Disqus.