Applications for U.S. home loans dropped last week to their lowest level in almost a year and a half, a trade group said on Thursday, as rising rates cut into demand for homes and mortgage refinancing.
THE MORTGAGE Bankers Association of America said its market index, a barometer of mortgage applications, fell 8.6 percent to 626.0 in the week ended Nov. 7, its lowest level since the week ended June 14, 2002.
The U.S. housing sector, which has provided crucial support to the economy for two years, is showing early signs of slowing as rates have risen since the summer.
The rate for a 30-year mortgage, the most popular home loan in the U.S, rose 0.09 percent to 5.94 percent last week, the trade group said. Thirty-year rates have risen almost a full percentage point since reaching record lows in mid-June, according to MBA data.
With higher rates, applications to refinance mortgages fell 10.1 percent, bringing the trade group’s refinancing index to 2,084.2, its lowest level since late August.
Applications for mortgages to buy homes fell 7.1 percent, bringing the group’s purchase index to 375.4, 18.5 percent below its peak in late May. That should translate into slowing home sales in the coming months.
But for now, home sales are still strong. Existing home sales reached a record in September, the last month for which data is available, while new home sales were close to a record level.
Strong housing demand is filtering through to the rest of the economy, as consumers buy appliances and furniture for their homes.
Consumer spending on durable goods rose an eye-popping 26.9 percent in the third quarter, according to gross domestic product data, helping to fuel overall economic growth of 7.2 percent.
“Housing is one of the most important underpinnings of consumer spending right now,” said Vincent Boberski, head of bond research at RBC Dain Rauscher in Chicago.
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