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New Mortgage Applications Fall as Rates Rise for Fifth Straight Week

Data released by the ""Mortgage Bankers Association"":http://www.mortgagebankers.org (MBA) Wednesday shows that consumer demand for mortgages waned last week as interest rates soared to their highest level in nearly seven months.
[IMAGE] MBA's index of total mortgage application volume slipped 2.3 percent for the week ending December 10, 2010, when compared to the previous week.

The organization's index of new applications for home purchases plummeted 5.0 percent from one week earlier, breaking a three-week streak of increases, but MBA says its purchase index remains near levels last seen in early May.

With mortgage interest rates up more than half a percentage point over the past month, it's no surprise that refinance activity has also declined sharply. MBA's refinance index decreased 0.7 percent last week, marking the fifth straight weekly decline for the trade group's gauge.

MBA reported that the average contract interest rate for 30-year fixed-rate mortgages increased to 4.84 percent for the week ending December 10, up from 4.66 percent the week before â€" nearly a 20 basis point jump in a mere seven days. This is the highest 30-year fixed-rate observed in the group's weekly survey since the beginning of May.

The average contract interest rate for 15-year fixed-rate mortgages climbed 23 basis points to 4.21 percent last week, up from 3.98 percent the previous week. It's the highest 15-year fixed-rate reported by MBA since the beginning of June.

""Treasury rates increased last week following news that lower tax rates could be extended for another two years, boosting growth prospects. With this move, mortgage rates reached their highest level in more than six months,"" said Michael Fratantoni, MBA's VP of research and economics.

The ""Federal Reserve"":http://www.federalreserve.gov held fast to its plan to buy up $600 billion in Treasury securities at its monetary ""policy meeting Tuesday"":http://dsnews.comarticles/fed-holds-direction-on-monetary-policy-2010-12-14. The strategy is intended to keep Treasury rates low, and in turn also drive down mortgage interest rates. But it has yet to bear out the desired outcome, as Fratantoni explained, because of other economic factors that are having a greater influence on the markets.

Paul Dales, U.S. senior economist for the research firm ""Capital Economics"":http://www.capitaleconomics.com, says it is too soon to judge whether the Fed's latest round of capital infusion, dubbed QE2, has been a success or a failure.

""[I]n recent weeks the economy has picked up momentum. And … the proposed second fiscal stimulus, if signed into law will surely put less of the burden to boost the economy on the Fed,"" Dales said.

""These two developments explain why the markets are not convinced that the Fed will complete the $600bn of Treasury purchases announced at the last meeting in early
November,"" Dales continued. ""Indeed, Treasury yields continued to rise after [Tuesday's policy meeting]. But the Fed was never going to perform a u-turn and shrink the size of QE2 just six weeks after announcing it.""

About Author: Carrie Bay

Carrie Bay is a freelance writer for DS News and its sister publication MReport. She served as online editor for DSNews.com from 2008 through 2011. Prior to joining DS News and the Five Star organization, she managed public relations, marketing, and media relations initiatives for several B2B companies in the financial services, technology, and telecommunications industries. She also wrote for retail and nonprofit organizations upon graduating from Texas A&M University with degrees in journalism and English.

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