U.S. mortgage applications tumbled for the third straight week to the lowest level since July 2006 even as borrowing costs declined, an industry trade group said on Thursday.
Applications for loans to buy homes fell to the lowest level in more than four years, while demand for refinancing loans dropped to the lowest since December 2006, the Mortgage Bankers Association said.
The trade group's seasonally adjusted index of total mortgage application activity fell 11.6 percent in the week ending Dec. 28 to 533.9. Its purchase index dropped 8.5 percent to 360.8 and the refinancing index slid 15.4 percent to 1,620.9.
Purchase demand has not been as low since the week of Oct. 10, 2003, when the gauge hit 359.0, the MBA said.
Applications were stunted during the Christmas holiday week despite falling mortgage rates.
"There's probably an exaggerated holiday effect in the most recent week's release" even with the seasonal and holiday adjustments, Doug Duncan, chief economist at the MBA, told Reuters.
He said the data are consistent with the trend for continued weakness in the real estate market and the MBA's forecast for housing to bottom in third quarter of 2008.
Refinancing demand has held up fairly well because it is interest-rate sensitive, Duncan said. But home buying typically slows during the winter months and consumers are also nervous about the state of the economy.
"From Thanksgiving to the end of January is really the dead spot in the industry," he said. "If you get weather effects, or as you have today, lots of concerns about whether the economy is going to get worse ... there's no surprise that you're seeing, especially on the purchase side, downturns because consumers are just unsure."
Smoothing out for volatility, the MBA's four-week averages for all three indexes also fell.
The market index dropped 9 percent, the purchase index declined 5.9 percent and the refinancing index sank 11.8 percent on a four-week moving basis, though the levels were little changed from October.
Adjustable-rate mortgages kept fading as a share of total applications. ARMs represented less than 10 percent of all loans, the trade group said, having at their peak in 2006 accounted for more 30 percent of loans requests.
Rates have begun to reset to sharply higher levels for many of those borrowers who took out loans at low initial rates are.
One-year adjustable mortgages dipped 3 basis points in the week to 6.00 percent, the lowest since mid-November. Fixed 30-year mortgage rates averaged 6.05 percent, down 5 basis points, the lowest since late November, the association said.