- THE MAGAZINE
The largest blackout in the history of North America late last week likely cut into applications in the Northeast, the Mortgage Bankers Association of America said on Wednesday.
But even ignoring the power cut, applications are falling, mainly because rates are rising and refinancing is slowing.
"It's obvious: when rates go up, the refinancing boom ends," said Brian Wesbury, chief economist at Griffin, Kubik, Stephens & Thompson, Inc. in Chicago.
The average rate on a 30-year mortgage rose 0.22 percentage point last week to 6.22 percent, almost 1.25 percentage points above its record low in mid-June, the Mortgage Bankers Association said. The group has been tracking rates in its weekly survey since 1990.
With higher rates, the number of mortgage applications has fallen almost 60 percent since peaking at the end of May, according to the association. That decrease has come mainly from a drop-off in refinancing applications, which have fallen over 70 percent.
Applications for mortgages to buy homes have fallen, but not nearly as dramatically -- just 15.4 percent since the end of May, according to the group. Demand to buy homes is strong in part because buyers want to snatch up homes before rates rise further. Rates are still low by historical standards. At the beginning of 2002, the 30-year rate was over 7 percent.
Some economists reckon that the housing sector, including appliances and furniture bought for homes along with money saved by refinancing mortgages, has been responsible for about 50 percent of economic growth over the last year. Eventually, home building and sales will slow, analysts said. Rising rates are no help to home sales, said Bob Gay, head of bond strategy at Commerzbank Securities in New York.
But a slowdown may not happen for six months, at which point other parts of the economy are likely to kick into gear, analysts said.
Higher rates brought the Mortgage Bankers Association's index of applications for the week ended August 15 down to 736.7, 10.7 percent lower than the prior week. That's the lowest level since the week ended July 12, 2002.
The decline was led by mortgage refinancing. The group's refinancing index for the week ending August 15 fell 14.9 percent from the previous week to 2,756.8, its lowest level since the week ended July 12, 2002.
Applications for mortgages to buy homes fell a bit, but not as much as refinancing. The group's purchase index fell 4.9 percent to 389.5, about in line with its average for the year.