Mortgage Demand Falls as Rates Spike, Refis Drop

U.S. mortgage rates spiked last week, slashing refinancing demand, while requests for home purchase loans slid 11 percent amid a final rush for federal tax credits, Mortgage Bankers Association data showed on Wednesday.

Time is running out for home buyers seeking tax credits of up to $8,000, with purchase contracts needing to be signed by the end of this month and loans closed by the end of June.

With just a month to cash in on the tax incentive, which is designed to infuse life into a fragile housing market, demand for mortgages to buy homes eked out a 0.2 percent seasonally adjusted rise in the week ended April 2, the trade group said.

But applications for refinancing slumped 16.9 percent, pushing the trade group's mortgage market index of total applications down 11 percent.

The average 30-year mortgage rate shot up by more than a quarter percentage point to 5.31 percent, a nearly eight-month high and well above the 4.61 percent record low a year ago.

Refinancing represented 58.7 percent of all applications last week, down from 63.2 percent the prior week. It was the lowest share since last August.

"Mortgage rates jumped last week as the Federal Reserve completed their purchases of mortgage-backed securities," Michael Fratantoni, MBA's vice president of research and economics, said in a statement.

U.S. home loan rates have likely seen their cyclical lows and are headed up now that the Federal Reserve has ended purchases of more than $1.4 trillion in mortgage-related debt aimed at lowering borrowing costs to revive housing.

The share of mortgages issued by government agencies accelerated during the deepest housing crash since the Great Depression, as bank lending became exceedingly restrictive, and has stayed strong as housing has begun to stabilize.

The MBA's government purchase index last week rose for the third straight week, and now nearly half of all applications to buy homes are for government loans — the highest share since February 1990.

The nearly simultaneous end of two major government housing supports — the tax credits and mortgage bond purchases — could result in an initial push to buy early in the spring selling season.

But with unemployment still hovering just under 10 percent and a steady stream of foreclosed properties still to hit the market, housing will bump along the bottom for at least a year, most housing experts expect.

Purchase applications likely will rise in April also from buyers stymied by unusually harsh winter weather.

"April is going to surprise to the upside," said Steve Blitz, senior economist at Majestic Research. "When you take the combination of the end of the tax program and the extent to which bad weather suppressed sales, if there is pent-up demand you're going to see it in April," he said.