U.S. mortgage applications sank last week to the lowest level since the end of last year despite falling borrowing costs, an industry trade group said Thursday.
The Mortgage Bankers Association's seasonally adjusted mortgage application index fell 7.6 percent in the week ending Dec. 21 to 603.8, its lowest reading since falling to 575.6 in the Dec. 29, 2006 week.
The MBA's weekly indexes have been exaggerated on the high side much of the year. Borrowers facing stricter loan standards often apply numerous times in search of getting one request approved.
The applications slump this week and last, however, appears to more closely reflect the status of ailing housing sales.
"Maybe late in 2008 we'll see some markets beginning to recover," said Gregory Miller, chief economist at SunTrust Banks in Atlanta, on Wednesday prior to the MBA report.
"But for the nation as a whole, I think the end of 2008 is probably as optimistic as one would want to get," he said. "More likely, we'll be well into 2009 before we start describing this housing cycle as 'in recovery"'.
Demand for both home purchase and refinancing applications dropped, as they did the prior week, when total loan requests fell 19.5 percent as interest rates climbed.
The MBA's seasonally adjusted refinancing applications index fell 8.5 percent to 1,915.3 last week, its weakest point since early September.
Loan requests for home purchases slid 6.6 percent to 394.5, a low since mid-February, according to the trade group.
Home prices posted their largest annual drop on record in October, according to the Standard & Poor's/Case-Shiller national index on Wednesday.
Prices will have to drop considerably more before the industry makes meaningful headway in selling off an unwieldy supply of unsold homes, many analysts said.
"Tighter mortgage lending standards, falling consumer confidence and a sharp drop in speculative purchases have all taken bites out of buyer demand, forcing sellers to adjust by cutting prices," said Mike Larson, real estate analyst at Weiss Research in Jupiter, Florida, after the S&P/Case-Shiller report was released. "There's no reason to expect an imminent turnaround."
The Commerce Department will release the November new homes sales figures on Friday. Sales likely fell to an annual rate of 720,000 last month from 728,000 in October, based on a Reuters survey of 65 economists.
Home applications trailed off last week despite falling mortgage rates. One-year adjustable mortgages tumbled 45 basis points in the week to 6.03 percent, the lowest since mid-November.
Fixed 30-year mortgage rates averaged 6.10 percent last week, down 8 basis points, the association said.