Home Purchase Mortgage Applications at 13-Year Low

By:: Peter King | July 14, 2010

Mortgage applications for home purchases fell to their lowest level in more than 13 years last week, amid concerns that the housing market may be entering a second downturn, or “double dip.”

The Mortgage Bankers Association (MBA) reported this morning that applications for home purchase mortgages fell a seasonally adjusted 3.1 percent last week, to their lowest level since December 1996. It was the ninth decline in the 10 weeks since the April 30 deadline for sales under the federal homebuyer tax credit.

Overall, the MBA’s Purchase Index was down 43 percent compared to the Independence Day week of one year ago.

The news comes at the same time that an independent economic researcher, Capital Economics, announced that the housing market has entered a new downturn following a surge created by the homebuyer tax credit. The report, titled “Double Dip Begins,” reports that pending home sales fell by approximately 30 percent in both May and June following a sharp runup in the previous two months, and predicts housing prices will decline over the next three months.

The Capital Economics report notes an increase in both mortgage delinquencies and foreclosures in the first quarter of 2010, and concludes the “shadow inventory” of homes likely to enter foreclosure is now at 7.8 million homes, double the 3.9 million currently on the market.

The softening housing market is occurring despite mortgage interest rates that remain at or near record lows. The MBA reported that interest rates were largely unchanged this past week, with average rates on both 30- and 15- year fixed-rate mortgages increasing a single basis point, up to 4.69 percent and 4.12 percent, respectively.

With home sales softening, mortgage activity has been increasingly dominated by refinancing in recent weeks, with refinances making up nearly 80 percent of all mortgage applications this past week, according to the MBA. The MBA does not provide data on mortgage underwritings, however, so it is not clear how the application rate relates to the number of mortgage refinances that are actually approved.

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