Mortgage applications in the U.S. rose last week for the first time in a month as a drop in prices and borrowing costs made homes more affordable.
The Mortgage Bankers Association’s index of loan applications increased 5.3 percent in the week ended April 15. The group’s gauge of purchases climbed 10 percent to the highest level this year, while the refinancing measure gained 2.7 percent.
Falling home prices and the lowest 30-year mortgage rates in a month may be shoring up residential real estate as the job market improves. Nonetheless, cheap financing hasn’t boosted home sales enough to change the view of Federal Reserve policy makers, who have described the housing market as “depressed” in statements following their last eight meetings.
“Housing affordability is now near record highs, and an improving labor market should provide a significant tailwind for demand,” Joe LaVorgna, chief U.S. economist at Deutsche Bank Securities Inc. in New York, said yesterday in a note to clients. The average rate on a 30-year fixed loan decreased last week to 4.83 percent, the lowest since the week ended March 18, from 4.98 percent, the mortgage bankers group said. Borrowing costs reached 4.21 percent in October, a record-low dating back to when the group’s records began in 1990.
Work began on 549,000 houses at an annual pace in March, up 7.2 percent from the prior month and more than forecast, figures from the Commerce Department showed yesterday in Washington. Building permits, a proxy for future construction, rose 11 percent to a 594,000 pace.
At the same time, housing remains the weak link in the recovery.
“Activity in the housing market continued to be depressed, held down by the large inventory of foreclosed or distressed properties on the market and by weak demand,” Fed policy makers said in minutes of their March 15 policy meeting released April 5.
Supporting their view, confidence among U.S. homebuilders fell in April, led by a decline in the outlook for sales. The National Association of Home Builders/Wells Fargo sentiment index declined to 16 this month from 17 in March, data from the Washington-based group showed this week. A measure of sales expectations for the next six months dropped to the lowest level since October.
KB Home (KBH), the Los Angeles-based homebuilder that targets first-time buyers, this month reported a bigger-than-expected loss for the quarter ended Feb. 28 as orders plunged.
“Today’s consumers remain very cautious, whether they have concerns about home prices falling further, their job status, their ability to qualify for a loan, or general confidence in the economy,” President and Chief Executive Officer Jeffrey Mezger said during a conference call with analysts on April 5. “A sustained, broad-based housing recovery will not occur until we start to experience material job creation.”
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