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U.S. mortgage application demand skidded last week to an eight-year low, driven by a nearly 30 percent slump in demand to refinance home loans as borrowing costs rose, a trade group said on Wednesday.
The Mortgage Bankers Association's seasonally adjusted mortgage applications index, which includes both purchase and refinance loans, slid 20.3 percent to 379.9 in the week ended Oct. 31, the weakest reading since December 2000.
Requests for applications to buy homes as well as refinance mortgages have been swinging dramatically since early September as chaos swept over global financial markets.
Government interventions aimed at slicing mortgage costs have yet to take hold.
Average 30-year mortgage rates increased by 0.21 percentage point to 6.47 percent last week, matching the level of the week ended Oct. 10.
That fixed home loan rate is edging closer to this year's peak of 6.59 percent reached during the summer, well above the 2008 low of 5.49 percent in January, according to the trade group.
There is little reason to expect housing is in the midst of a turnaround with 30-year fixed mortgage rates at the upper end of a six-year range, unemployment at a five-year high and rising, and an excess supply of unsold homes pressing prices lower, analysts said.
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"Clearly getting mortgage rates to come down is going to help the housing market. It's certaintly not a be-all and end-all but it's one of the necessary elements," said Keith Hembre, chief economist at First American Funds.
Intensifying worry about potential job losses has chipped away at U.S. consumer confidence, stoking fears of a deepening recession and inhibiting demand for home purchases, analysts have said.
Planned layoffs at U.S. firms surged to a nearly five-year peak last month, rising 19 percent from September, as troubles that emanated from housing and banking spilled into the broader economy, according to a report by outplacement firm Challenger, Gray & Christmas.
"Without a job you're not going to qualify or try to take out a loan, and you have tightening standards across the board," Hembre said. At the same time, "who wants to buy an asset that's going down in value particularly with borrowed capital that's at a high rate of interest."
U.S. home prices have already slashed more than 20 percent off the top set in the summer of 2006, based on the Standard & Poor's/Case-Shiller index, and are widely seen losing another 10 percent.
The Mortgage Bankers Association said its seasonally adjusted purchase index dropped 13.9 percent to 260.9 last week, the lowest since December 2000, while its refinancing applications gauge sank 27.8 percent to 1,075.4 in the last week of October.
Refinancing applications had shriveled as mortgage rates jumped during the summer, leaving the index last this low in late August.
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