Mortgage Applications Drop 4.9 Percent as Homebuyers Turn Wary

Weekly mortgage applications slid 4.9 percent as homebuyers reportedly turned wary of making commitments.

Potential buyers might have been concerned about the Republican tax plan, which lowers the deduction for property taxes, CNBC reported.

Mortgage applications to purchase a home had their weakest showing since April, according to the Mortgage Bankers Association.

Applications are 8 percent lower than a year ago, CNBC reported.

"The seasonal slowdown is certainly a key factor, but it could be that some buyers wanted to see the fine print of the bill before making a commitment, and that led to a pullback," Joel Kan, an MBA economist, told CNBC.

Applications to refinance a home loan, which would not be impacted by the tax bill, also fell, down 3 percent for the week, despite lower interest rates, CNBC said.

The average contract interest rate for 30-year fixed-rate mortgages with conforming loan balances ($424,100 or less) decreased to 4.16 percent from 4.20 percent.

"The refinance share of applications was the highest in a year, although the refi share has risen not because refis are strong, but because purchase activity is so weak," Kan said.

To be sure, the U.S. tax overhaul as currently proposed will make housing less affordable, according to nearly half of the property market experts polled by Reuters, with another third saying it would not do anything to improve it.

A decade on from the start of the crash that knocked more than a third off U.S. home values and led to a deep global recession, the housing market has bounced back smartly.

U.S. house prices are expected to rise next year and in 2019, faster than predicted just a few months ago and at more than double the rate of underlying consumer inflation and wages. That is in sharp contrast to the outlook for Britain.

The S&P/Case Shiller composite index of U.S. home prices in 20 metropolitan areas is expected to gain 5.1 percent next year and 4.2 percent in 2019.

The main challenge currently is a chronic shortage of homes, which is pushing prices beyond the reach of new buyers, who tend to be young and not particuarly well-paid and, if university-educated, already saddled with huge amounts of debt.

Now adding to those concerns is an effort by President Donald Trump's administration to overhaul the tax code, which analysts say could undermine any potential improvements in affordability in the housing market.

The Republican tax proposal allows interest payment deductions on mortgage debt up to $750,000, down from the current $1 million. The House of Representatives is scheduled to vote on the tax bill on Tuesday afternoon, and Senate Majority Leader Mitch McConnell said his chamber would vote on Tuesday evening.

Twelve of 26 analysts who answered an extra question said the tax bill in its current form will probably make housing more expensive. Eight respondents said it would do nothing and only six expected it would improve affordability.

"Losing the tax deduction of mortgage payments and property taxes - of having deductibility limited - makes housing less attractive and less affordable," said Robert Brusca, chief economist at FAO Economics.

But he added: "The Trump/Congress plan is such a not-well-thought-out-mess it's hard to tell how it will impact people in a systematic way."

(Newsmax wire services contributed to this report).