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Mortgage Applications Drop as Rates Rise

U.S. demand for applications to purchase and refinance homes declined last week from the highest level in nearly four years as mortgage rates rose, an industry group said Wednesday.

The Mortgage Bankers Association's seasonally adjusted home loan application index fell 2.1 percent in the week ended Feb. 8 to 1,063.5, after hitting a peak in the prior week last seen in late March 2004.

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Average borrowing costs on 30-year fixed-rate mortgages, as well as for one-year adjustable-rate mortgage (ARM) loans, rose by 0.11 percentage point last week to 5.72 percent.

That both short- and long-term mortgage rates are the same is atypical considering the behavior of the Treasury notes that are a peg for home loan rates, according to Stone & McCarthy Research Associates.

"We think this reflects a disproportionate impact of tighter lending standards on the ARMs market," writes Nancy Vanden Houten of Stone & McCarthy.

Both purchase and refinance application requests slipped during the week, the mortgage bankers group said.

The MBA's purchase index declined 0.3 percent to 403.9 while its refinancing applications gauge fell 3.0 percent to 4,901.5 on a seasonally adjusted basis.

Demand for loans is higher using a four-week moving average, which smooths out volatility.

Few analysts, however, expect a housing market revival soon. Still standing in the way is an ominous supply of unsold homes.

Lenders are making it much more difficult for borrowers without pristine credit to get loans as defaults and foreclosures mount.

The higher application totals of past months reflect multiple attempts by borrowers with different lenders, hoping to get one of them accepted.

"With no progress in whittling the excess supply, we do not think the bottom in housing activity is yet in sight," said analysts at investment bank Goldman Sachs.

Applications for home refinancing, however, had been particularly strong over the past month as average 30-year mortgage rates slumped as low as 5.49 percent in mid-January, the lowest since June 2005, according to the trade group.

The current loan rate is still about half a percentage point lower than in the same week a year ago.

The refinance share of mortgage applications dipped last week, but still represented more than two-thirds of total loan demand.

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  • Diana Olick serves as CNBC's real estate correspondent as well as the editor of the Realty Check section on CNBC.com.

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