Mortgage Applications Fall as Rates Rise

Applications for U.S. home mortgages fell last week as interest rates on 30-year loans rose more than in any week since March, industry group figures showed on Wednesday.

The Mortgage Bankers Association (search) said its seasonally adjusted index of mortgage application activity fell 0.3 percent to 752.1 in the week ending July 29, adding to the previous week's 5.8 percent loss. The four-week moving average is down 3.2 percent to 774.9 from 800.2.

Fixed 30-year mortgage rates (search), the benchmark for the mortgage industry, averaged 5.83 percent last week, excluding fees, up 11 basis points, or 0.11 of a percentage point, from 5.72 percent the previous week.

It was the largest increase since the 30-year rate jumped 13 basis points in the week ending March 25. That rise drove the 30-year rate to 6.08 percent, its highest level this year.

Last week's slide in mortgage applications was in the refinancing sector. The MBA's seasonally adjusted index of refinancing applications dropped 3.0 percent to 2,250.3 after falling 11.4 percent the prior week.

Purchasing activity, however, rose for the first time in four weeks.

The MBA's purchase index, a gauge of loan requests for home purchases, increased 1.9 percent to 494.5, after dropping 0.7 percent the previous week. On a four-week-moving average, the index is down 1.3 percent to 489.3 from 495.9.

In early June the purchase index reached a record high of 529.3.

Despite last week's rise in rates, most industry analysts believe interest rates are still at levels that entice consumers, pointing to data showing the housing market remains robust with little sign of easing.

The 30-year rate is still below its level of one year ago. It stood at 5.97 percent during the week ended July 30, 2004.

Fixed 15-year mortgage rates last week averaged 5.41 percent, up 9 basis points from 5.32 percent the previous week.

Comparatively low mortgage rates have buoyed the housing sector for more than four years. Long-term rates have remained relatively low, even though the Federal Reservehas raised its target for short-term interest rates nine times since June 2004.

The Fed's policy-making Federal Open Market Committee (search) meets on Aug. 9. It is widely expected to raise its key federal funds rate by a quarter-percentage point to 3.5 percent.

"It's surprising that we did not see a sudden flurry of mortgage applications -- particularly refinancings -- leading up to the Fed's announcement (on Tuesday) from consumers trying to lock in their rate before rates go up," said Bob Walters, chief economist at Quicken Loans, the largest U.S. online mortgage lender, as ranked by National Mortgage News.

On a four-week moving average, the refinancing index dropped 5.2 percent to 2,435.8 from 2,570.3.

Refinancings last week also decreased as a percentage of all mortgage applications, falling to 41.7 percent from 42.9 percent the previous week.

After climbing steadily during the previous two weeks, demand for adjustable-rate mortgages (search) (ARMs) fell in the week ended July 29, the MBS said.

The ARM share of activity stood at 28.5 percent of total applications last week, down from 29.4 percent the previous week.

With ARMs, low initial payments allow borrowers to buy homes they may not be able to afford with a fixed-rate loan.

The MBA's survey covers about 50 percent of all U.S. retail residential mortgage originations. It has been conducted weekly since 1990. Respondents include mortgage bankers, commercial banks and thrifts.