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U.S. mortgage applications gain, demand surges

July 6, 2005

By Julie Haviv

NEW YORK (Reuters) – Applications for U.S. home mortgages
rose for the first time in three weeks despite higher interest
rates, an industry group said on Wednesday.

The Mortgage Bankers Association said both purchasing and
refinancing activity gained sharply in the week ended July 1.

The MBA said its seasonally adjusted index of mortgage
applications increased 9.6 percent to 853.4, more than
offsetting the previous week’s 1.1 loss.

On a four-week moving average, the index is up 1.3 percent,
from 783.4 to 795.0.

“The MBA numbers are pretty volatile and it is hard to get
too excited over a single week’s report,” said Stephen Stanley,
chief economist at RBS Greenwich Capital. “However, it does
help confirm that the housing market continues to be extremely
strong.”

Industry analysts and economists have said they expect home
sales to edge off record 2004 levels as the Federal Reserve
raises interest rates. But demand remains strong and has shown
few signs of waning.

However, data released on Wednesday by the National
Association of Realtors indicated that home sales in June and
July may edge lower.

The NAR’s Pending Home Sales Index, based on data collected
in May, stood at 124.9, down 2.0 percent from April but 3.7
percent above the comparable month a year ago.

Despite the drop, May’s reading marks the third-highest
level on record, helping affirm the strength in the housing
market.

Many analysts say housing prices will stop climbing when
mortgage rates hit levels that will deter buying. But for now,
they remain at rates that still entice consumers.

“In my opinion, the 30-year rate would have to move to
close to 7 percent for demand to wane and I do not see that
happening any time soon,” Stanley said.

Fixed 30-year mortgage rates averaged 5.58 percent last
week, excluding fees, up 11 basis points from 5.47 percent the
previous week.

Mortgage rates are still lower than a few months ago. The
30-year mortgage rate hit 6.08 percent at the end of March,
according to MBA figures. A year ago, it was at 5.96 percent.

REFINANCING, PURCHASE LOANS REBOUND

The MBA’s seasonally adjusted index of refinancing
applications climbed 10.2 percent to 2788.2, after falling 1.8
percent the prior week.

The MBA’s purchase index, a gauge of loan requests for home
purchases, rose 9.1 percent to 520.8 after dropping 0.4 percent
the previous week. The index is slightly below its record high
of 529.3 reached in the week ended June 10.

The MBA also said the average contract interest rate for
15-year fixed-rate mortgages rose 12 basis points last week, to
5.18 percent from 5.06 percent a week earlier.

Rates on one-year ARMs rose to 4.60 percent from 4.42
percent the prior week.

Applications for adjustable-rate mortgages rose to 30.7
percent of total applications from 30 percent, which was the
lowest level in over a year, the MBA said.

ARMs continue to be popular loan vehicles. The low initial
payments allow borrowers to buy homes that they would not
necessarily afford with a fixed-rate loan.

Refinancings also increased as a percentage of all mortgage
applications, at 45.7 percent, up from 45.4 percent the
previous week.

The MBA’s survey covers approximately 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.

Home prices in some areas of the United States have risen
so high and so quickly that an increasing number of people are
voicing concerns over a housing bubble.

“There are areas within the country that are a full blown
bubble and areas that are just frothy,” RBS Greenwich Capital’s
Stanley said. “Either way, my view is that the balloon will
slowly ease air out and not burst.”




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