Rates and mortgage apps both slide, buyers lack appetite
Interest rates for U.S. home mortgages dropped last week for the first time in two-and-a-half months in the wake of soothing comments from Federal Reserve Chairman Ben Bernanke, but demand for home loans still fell.
Fixed 30-year mortgage rates averaged 4.58 percent in the week ended July 19, down 10 basis points from the week before, the Mortgage Bankers Association said on Wednesday.
It was the biggest weekly drop since August 2012, though rates are still well above the 3.59 percent seen at the beginning of May before they started moving higher.
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Comments from Bernanke last week acted as a balm for rattled markets as he said that the timeline for winding down the central bank's bond-buying program was not set in stone.
The Fed has been buying $85 billion a month in bonds and mortgage-backed assets to keep borrowing costs low and stimulate economic growth.
The low mortgage rates have helped to lure buyers as the housing market gets back on its feet, but concerns the program could end sooner than had been expected sent rates sharply higher over the summer.
In testimony last week, Bernanke said the Fed still expects to start scaling back its bond purchases later this year, but he left open the option of changing that plan if the economic outlook shifted.
The recent higher cost of mortgages has raised concerns that the increase could dampen demand in the sector and slow the housing recovery, though most economists do not expect it to be derailed. Even with the increase, rates remain historically low.
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Still, last week's decline in rates did not bolster demand for mortgages. The MBA's seasonally adjusted index of loan requests for home purchases, a leading indicator of home sales, fell 2.1 percent.
The gauge of refinancing applications slipped 0.7 percent. The refinance share of total mortgage activity was unchanged at 63 percent of applications.
The index of mortgage application activity, which includes both refinancing and home purchase demand, fell 1.2 percent.
The survey covers over 75 percent of U.S. retail residential mortgage applications, according to MBA.