The number of mortgage applications filed last week fell to the lowest level in more than three years, it was announced Wednesday, more evidence that the U.S. housing market is stumbling.
The Mortgage Bankers Association’s index of applications to buy a home or refinance an existing mortgage declined 6.8 percent to 554.1 last week, from 594.6 a week earlier. The gauge is the lowest since it was 516.9 in the week ended May 24, 2002.
Higher mortgage rates are limiting housing demand and the desire to refinance existing loans, a source of cash for consumers during the past few years. Home sales are forecast to decline in 2006 after a record this year, which economists said will provide less fuel for the economy.
“Although homebuying remains at relatively high levels, although no longer robust, refinancing activity has slumped,” said Steven Wood, president of Insight Economics in Danville, California. “Less refinancing activity should dampen consumer spending.”
The gauge of applications to purchase homes fell 4.5 percent to 432.9, the lowest since Feb. 18, from 453.1 the week before. The group’s gauge of refinancing fell 11.2 percent to 1,259.1 from 1,418.1.
The average rate on a 30-year fixed mortgage was 6.21 percent last week compared with 6.22 percent a week earlier. The rate is up from 5.72 percent in the same week last year.
At the current mortgage rate, the cost for every $100,000 of a loan would be $613.12 a month. When the rate, as measured by the Mortgage Bankers Association, was at a record low of 4.99 percent in June 2003, the cost was $536.21 a month.
The share of mortgage applications for refinancing fell to 40.2 percent from 41.7 percent the previous week. The mortgage bankers group’s refinancing gauge was the lowest since the week ended April 5, 2002.
“People’s take-home pay has been augmented by a second income, which has been the equity that they’re taking out of their houses,” Wachovia Corp. chief executive Kennedy Thompson said Dec. 21. “We’re not going to see that continue, and that will result in a little bit of a slowdown in consumer spending.”
Consumer spending growth will probably average 2.8 percent a quarter next year, the slowest rate since 2002, according to a Bloomberg News survey of economists.
Spending will accelerate to a 3.3 percent annual rate in the first three months of the year, from the fourth quarter’s expected 1.4 percent pace, and then slow the rest of 2006, according to the forecast.
Other reports show home sales are beginning to wane.
Purchases of homes for investment purposes have started to slow, economists said.
“We had thought that investors would begin to exit the market early in 2005,” Fannie Mae chief economist David Berson said in a statement. “It now looks as if they are beginning to, but much later in the year.”
New-home sales fell 11.3 percent in November, and a record number of homes were left on the market at the end of the month, the Commerce Department said Friday. Sales of existing homes, which make up about 85 percent of the housing market, probably fell to a 7 million annual rate last month from 7.09 million in October, according to the median forecast in a Bloomberg survey before today’s report.
