Home loan demand soars in first week of new year

NEW YORK (Reuters) - U.S. mortgage applications skyrocketed during the first week of 2007 as interest rates fell for the first time in five weeks, lending support to the view that the housing market is stabilizing, an industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity , which includes both refinancing and purchasing loans, jumped 16.6 percent to 671.1 for the week ended January 5.

Applications were 11.8 percent above their year-ago level.

However, the monthly average shows a decline in the volume of applications for home loans, with the four-week moving average down 2 percent.

Dean Maki, chief U.S. economist at Barclays Capital in New York, said the indexes tend to be volatile but lower rates have enticed consumers, which is benefiting the U.S. housing market.

"We believe home sales stabilized in the fourth quarter and that construction will stabilize by mid-year," he said. "We do see housing providing a significant drag again in the first quarter, but by mid-year we see the drag as having largely faded."

Seasonal factors and low mortgage rates were largely behind the rise in home loan demand.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.13 percent, down 0.09 percentage point from the previous week. Interest rates were above year-ago levels of 6.08 percent.

The MBA's seasonally adjusted purchase index , widely considered a timely gauge of U.S. home sales, soared 16.2 percent to 472.8, its highest since the week ended January 20, 2006 when it reached 473.7. The index was also above its year-ago level of 457.4, a rise of 3.4 percent.

The group's seasonally adjusted index of refinancing applications surged 17.3 percent to 1,923.8, up 28.5 percent from a year ago when the index stood at 1,497.5.

The refinance share of applications increased to 48.4 percent from 48.1 the previous week.

Interest rates have moved higher in previous weeks, which suppressed loan demand, but that did not offset the stabilization seen in the U.S. housing market.

"Other factors such as a strong income growth and slower house price appreciation, both of which are improving affordability," said Maki. "Mortgage rates are still below where they stood last summer."

AWAY WITH ARMS

The gap between some fixed- and floating-rate loan rates is slim. Fixed 15-year mortgage rates averaged 5.85 percent, down from 5.93 percent. Rates on one-year adjustable-rate mortgages (ARMs) decreased to 5.79 percent from 5.84 percent.

The narrowing gap between these two types of loans has been luring consumers to fixed-rate loans and away from ARMs.

The ARM share of activity decreased to 20.1 percent from 20.4 percent the previous week, its lowest since July 2003.

The MBA's survey covers about 50 percent of all U.S. retail residential loans. Respondents include mortgage banks, commercial banks and thrifts.

http://news.yahoo.com/s/nm/20070110/bs_nm/u