Consumer demand for home loans plummeted last week as mortgage interest rates shot up against the backdrop of the ""Federal Reserve's announcement"":http://dsnews.comarticles/fed-to-buy-600b-in-securities-hold-interest-rates-low-2010-11-03 to pump more money into the economy Ã¢â‚¬" an initiative that's fundamental design is to keep interest rates low in hopes of buoying economic growth.
[IMAGE] The total volume of new mortgage applications sank 14.4 percent for the week ending November 12, the ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) reported Wednesday. It's the biggest week-to-week drop of 2010, and the lowest reading of applications as measured by the trade group in four months. MBA noted that the results do not include an adjustment for Veterans Day.
MBA's refinance index plunged 16.5 percent from the previous week and is at its lowest level observed since July of this year. The purchase application index declined 5.0 percent, after three consecutive weekly increases.
Michael Fratantoni, MBA's VP of research and economics, says mortgage applications, particularly for refinances,[COLUMN_BREAK]
dropped in response to a sharp increase in interest rates last week triggered by economic data that indicated stronger performance and lingering uncertainty about the structure and impact of the Fed's $600 billion Treasury-buying program.
Average rates for 30-year fixed mortgages rose 18 basis points during the one-week period as Treasury yields headed higher.
But the research firm ""Capital Economics"":http://www.capitaleconomics.com says it's too soon to conclude the Fed got it wrong.
""The fact that Treasury yields have risen rather than fallen since the Fed announced the launch of QE2 is not necessarily evidence that the policy is failing, especially when the U.S. central bank has not yet even started to buy the additional bonds,"" Capital Economics said in a research note released to DSNews.com.
""However, it does underline our concerns that additional monetary easing may not provide much help to the wider economy and could simply encourage the development of new bubbles, notably in commodities, that ultimately self-destruct,"" the firm's analysts said.
According to MBA's market data, the average contract interest rate for 30-year fixed mortgages increased to 4.46 percent last week, up from 4.28 percent the week prior. This is the highest 30-year fixed-rate observed in the trade group's survey since the week ending September 10, 2010.
The average contract rate last week for 15-year fixed-rate mortgages increased to 3.87 percent from 3.64 percent. MBA says it is the highest since the week ending September 17, 2010.