By Agency reporter

Thursday, 18 Nov 2010

The number of United States mortgage applications dropped the highest last week, as an increase in borrowing costs caused refinancing to plunge.

The Mortgage Bankers Association‘s index fell by 14 per cent in the week ended November 12, the Washington-based group said on Wednesday. Refinancing plummeted by 17 per cent, the most since early April, and purchase applications were down by five per cent.

Bloomberg News reported that, the increase in mortgage rates comes as data have shown the economic recovery picked up at the start of the fourth quarter, raising concern the Federal Reserve‘s second round of asset purchases that began last week was unnecessary.

Unemployment near 10 per cent and state probes into lenders‘ foreclosure procedures are other reasons potential buyers may hold off on home purchases.

”Yields in the market have moved up, and if the mortgage refinancing window has not shut, it soon will,” the Chief Financial Economist at Bank of Tokyo-Mitsubishi UFJ Limited, Mr. Chris Rupkey, in New York, said before the report. ”Mortgage rates are moving up sharply with Treasury yields. Consumers are still cautious on the outlook for the economy, so they‘re hesitating to buy the biggest of big-ticket items, the family house.”

Banks were also closed one day last week for the Veterans Day holiday on November 11, which may have contributed to the drop in applications. Holidays make it difficult to adjust the data for seasonal variations.

The average rate on a 30-year fixed mortgage rose to 4.46 per cent from 4.28 per cent. The 4.21 per cent rate reported for the week ended October 8 was the lowest in records going back to 1990.

At the current lending rate, monthly payments for each $100,000 of a loan would be about $504, or $22 less than a year ago when the rate was 4.82 per cent.

The average rate on a 15-year fixed loan rose to 3.87 per cent from 3.64 per cent, and the rate on a one-year adjustable mortgage increased to 7.11 per cent from 7.08 per cent.

The yield on the benchmark 10-year Treasury note climbed to 2.79 per cent at the end of the day on November 12 from 2.53 per cent the previous week. On November 5, the Labor Department reported the employers added 151,000 workers to payrolls, more than double the median forecast of economists surveyed.

The Fed on November 13 began buying the first allotment of what it said earlier this month would be $600bn in asset purchases through June. Treasuries rallied beginning in September after Fed officials began signaling such purchases were likely.

The share of applicants seeking to refinance fell to 80.3 per cent from 81.7 per cent the prior week, the Mortgage Bankers Association said.

Another report may show work began on 598,000 homes at an annual pace in October, down from 610,000 in September, according to the median forecast of economists surveyed before a Commerce Department report.

Source: Punch