Mortgage applications in the U.S. fell last week by the most since the period ended Feb. 11 as higher interest rates discouraged home buying and refinancing.
The Mortgage Bankers Association’s index of loan applications decreased 7.5 percent in the week ended March 25. The group’s refinancing measure dropped by 10 percent, while the gauge of purchases fell 1.7 percent.
A slide in home prices may idle potential buyers who anticipate even lower values in coming months. Foreclosures are adding to the excess supply of distressed properties, leaving some Americans with bigger mortgages than their homes are worth, hampering relocation.
“If people are not sure when homes prices should bottom, they’re going to be less likely to want to invest in a home,” Celia Chen, an economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, said before the report. “Weaker demand will weaken home prices, making it more difficult for those who are distressed to sell their homes.”
Residential real estate prices dropped in January by the most in more than a year, raising the risk that U.S. home sales will keep slowing. The S&P/Case-Shiller index of property values in 20 cities fell 3.1 percent from January 2010, the group said yesterday.
Rising interest rates are a hurdle as well. The average rate on a 30-year fixed loan increased last week to 4.92 percent from 4.80 percent, the mortgage bankers group said. Borrowing costs have increased since 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 increased to 4.16 percent from 4.02 percent.
The share of applicants seeking to refinance a loan fell to 64.3 from 66.4 percent.
Home sales haven’t recovered for the U.S. spring selling season, usually the busiest time for buyers, Lennar Corp. Chief Executive Officer Stuart Miller said during a conference call with investors yesterday.
“The long-awaited selling season of 2011 has not yet defined itself as the beginning of a recovery cycle,” Miller said. “We continue to believe that the housing recovery will take time and patience and will be inconsistent and uneven”
Miami-based Lennar, the second-most profitable U.S. homebuilder last year, unexpectedly reported net income for the first quarter after booking a lawsuit settlement and adding income from its distressed-investing unit.
Purchases of new homes fell in February to the lowest level on record, the Commerce Department said on March 23. Builders started construction on 479,000 dwellings at an annual pace last month, almost matching the record-low 477,000 rate reached in April 2009.