Mortgage Applications in the U.S. Dropped Last Week as Purchases Declined

Mortgage applications in the U.S. fell last week, reflecting declines in purchases and refinancing that signal a lasting housing recovery will take time to develop.

The Mortgage Bankers Association’s index of loan applications decreased 6.5 percent in the week ended Feb. 25. The group’s purchase index dropped 6.1 percent, and its refinancing gauge declined 6.5 percent.

Unemployment at 9 percent may be holding back sales, at the same time mounting foreclosures limit construction and depress house prices. Recent gains in borrowing costs also have removed some of the incentive for purchases and refinancing, delaying a sustained rebound in the industry that triggered the recession.

“The housing market is still fragile,” Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, said before the report. “But it looks like we are bouncing along the bottom rather than seeing new downside.”

The average rate on a 30-year fixed loan declined last week to 4.84 percent from 5 percent the prior week. Borrowing costs have been moving up after reaching 4.21 percent in October, the lowest since the group’s records began in 1990.

The average rate on a 15-year fixed mortgage fell to 4.17 percent from 4.28 percent.

The share of applicants seeking to refinance a loan dropped to 64.9 percent last week from 65.7 percent the prior week.

Purchases of new houses fell 13 percent in January, Commerce Department figures showed. Sales of previously owned homes, which make up more than 90 percent of the market, climbed to the highest level in eight months, led by rising demand for distressed properties, according to the National Association of Realtors.

2011 Foreclosures

The number of homes receiving a foreclosure notice will climb about 20 percent in 2011, reaching a peak for the housing crisis, according to RealtyTrac Inc., an Irvine, California- based dataseller.

Builders have pulled back. Housing permits fell 10 percent in January, according to Commerce Department figures.

Homebuilders see little improvement. D.R. Horton Inc., the second-largest U.S. homebuilder by stock-market value, on Jan. 27 reported a fiscal first-quarter loss that was wider than analysts projected.

“I don’t see anything in ‘11 that’s going to make ‘11 better than ‘10,” D.R. Horton Chief Executive Officer Donald Tomnitz said during a conference call. “We need job growth, we need consumer confidence and we still have issues with qualifying people with tighter mortgage underwriting” standards.

The S&P/Case-Shiller index of home values in 20 cities fell 2.4 percent in December from a year earlier, the biggest 12- month decrease since December 2009. Prices were down 31 percent from their peak in July 2006, the data showed.

The Washington-based 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

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