Home loan demand slows despite 5% rates

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Applications for home loans fell nearly 11% last week despite low interest rates, with refinancing activity apparently running out of steam, the Mortgage Bankers Assn. said in a report today.

Adjusted for seasonal factors, purchase loan applications decreased 3.3% from the week earlier while refinancing applications fell 15.1%.

This occurred despite no significant change in rates, according to the trade group. It calculated that the average rate was 5.02% for a 30-year fixed loan compared to 5.00% a week earlier, with points decreasing to 1 from 1.05 (including the origination fee). The study assumed that borrowers have good credit, a 20% down payment or at least 20% equity in their homes.

‘Although rates remain low, there appears to be a smaller pool of borrowers who are willing and able to refinance,’ said Michael Fratantoni, the association’s vice president of research.

Together with a U.S. Commerce Department report showing new-home sales fell unexpectedly in December for the second month in a row, the slowing mortgage applications were fodder for those who believe housing, despite massive government support programs, will recover only slowly.

‘We experienced a once-in-a-lifetime housing bubble, not a traditional expansion,’ said Mike Larson, a mortgage and real estate analyst at Weiss Research. ‘That means we shouldn’t expect a traditional, vigorous, cyclical recovery.’

-- E. Scott Reckard