Demand for Mortgages Fluctuates at Year-End but Remains Weak

The number of mortgage applications filed by consumers bounced up and down during the final weeks of 2010, dropping the week before the Christmas Day holiday and rising the week after. Market watchers warn that[IMAGE]

although a number of economic indicators have signaled improvement in recent weeks, the incremental boosts are doing little to lift the home financing market, which looks to be situated for many more months of depressed activity.

According to data released by the ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) Wednesday, total mortgage loan application volume decreased 3.9 percent for the week ending December 24, 2010 when compared to the week prior, but then increased 2.3 percent the following week, ending December 31, 2010. Both weeks' results include an adjustment to account for the Christmas and New Year's Day holidays.

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MBA's refinance application index and home purchase app index followed the same ebb and flow pattern. For the week ending December 24, 2010, applications for refinancing plunged 7.2 percent, and then rose 3.9 percent during the last week of the year. The trade group's purchase index increased 3.1 percent during the week of December 24, but decreased 0.8 percent the following week.

The research firm ""Capital Economics"":http://www.capitaleconomics.com delved a little deeper into the mortgage application stats to examine the month-long trends and explain the steady falloff in activity during the latter part of the year.

In a research note released to DSNews.com, the firm's analysts explained that the overall volume of mortgage applications plummeted 27.7 percent in December on a month-over-month basis, which followed a 10 percent drop in November to take the number of applications to their lowest level since last April.

Paul Dales, senior U.S. economist for Capital Economics, says the end-of-year declines were solely due to sharp drops in refinancing linked to the recent rise in mortgage rates. He points out that in the two months since 30-year mortgage rates have risen from their record low of 4.21 percent in mid-October, to 4.82 percent at the end of December, refinancing applications have dropped by 44 percent.

Mortgage rates are now back at the levels seen in the first half of last year, Dales notes, and with rates expected to continue rising, he says “the prospect of a meaningful recovery in the housing market in 2011 is becoming even more remote.”