U.S. Home Loan Demand Climbs Amid Higher Rates

U.S. mortgage applications rose last week, fueled by increased demand for home purchase loans even as interest rates hit their highest level in nearly a year, an industry group said Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended July 6 rose 1.1% to 626.2.

Applications were 10.5% above their year-ago level.

The four-week moving average of mortgage applications, which smooths out the volatile weekly figures, was down 1.6% at 627.0.

Mike Larson, a real estate analyst at investment firm Weiss Research in Jupiter, Florida, said the rise is not indicative of an imminent turnaround for the slumping housing market.

"The interest rate market is extremely volatile right now," he said.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.65%, up 0.15 of a percentage point, the highest since the week ended July 21, 2006, when they were at 6.69%.

As rates fluctuate, mortgage applications will probably bounce around week-to-week, Larson said.

The rise in demand for loans to buy homes last week offset lower refinancing activity.

The MBA's seasonally adjusted purchase index, widely considered a timely gauge of U.S. home sales, rose 3.8% to 453.9. The index was 6.8 percent above its reading a year earlier, when it was at 425.0.

The group's seasonally adjusted index of refinancing applications decreased 3.0% to 1,636.9, its lowest since December 2006. The index was up 16.9% from a year ago, when it was at 1,400.5.

The refinance share of applications decreased to 36.2% from 37.8% the previous week.

Data Less Reliable

U.S. housing industry indexes, in general, tend to be volatile. Recent data on home sales suggest a delayed recovery for the hard-hit sector.

For some analysts, the MBA's weekly mortgage applications data has become increasingly unreliable as a gauge of the state of the U.S. housing market.

"These numbers have become so volatile in recent months that it is impossible now to have a strong view on what the data will do in any particular week," Ian Shepherdson, chief U.S. economist at High Frequency Economics in Valhalla, New York, said in commentary published Tuesday.

While the trend in the purchase index has risen, the pending existing home sales index continues to drop sharply. Therefore, the trend in applications has not been followed by an increase in home sales activity, he said.

"If rising mortgage applications were going to lift sales, it would have surely happened by now," he said.

Nevertheless, higher mortgage rates should almost guarantee lower loan demand.

Fixed 15-year mortgage rates averaged 6.31%, up from 6.20%. Rates on one-year adjustable-rate mortgages, or ARMs, rose to 5.60% from 5.49%.

The ARM share of activity decreased to 20.4% from 21.0% the previous week.

The MBA's survey covers about 50% of all U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

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