Mortgage volume drops to 4-year low, latest sign of slowing real estate market
NEW YORK – Mortgage application volume fell to its lowest level in more than four years last week, the latest indication that the once red-hot real estate market is cooling down.The Mortgage Bankers Association reported Wednesday that its market composite index, a gauge of mortgage loan application volume, fell to 527.6 last week, down 1.2 percent from the previous week’s reading of 533.8. This is the lowest index reading since May 2002.The drop in loan volume comes as little surprise to most analysts, according to Frank Nothaft, chief economist at Freddie Mac.”On the whole, we expect lower origination volume throughout the year. It may not fall week by week and it may pick up a little bit at times, but we expect a decline,” he said.The main cause are higher mortgage rates. Interest rates on fixed mortgages are at the highest level in four years and rates on adjustable loans are the highest in five years, Nothaft said.The Federal Reserve has increased key short-term interest rates by a quarter percent 17 consecutive times since June 2004. Higher interest rates make the cost of borrowing more expensive.Although the central bank has indicated a pause in interest rate hikes is near, the effects of the increases will ripple through the economy for at least the next year, Nothaft said, which will continue to affect mortgage volume.”We’re projecting to see mortgage rates on average in 2007 remain above 2006 averages,” he said. “So, expect to see a decline in mortgage volume through 2006 and into 2007.”Already, the real estate market looks less like the steam engine it was last year.Last week, the National Association of Realtors reported that sales of previously owned homes and condominiums slipped 1.3 percent in June, the eighth drop in the past 10 months. The Commerce Department also said that new home sales fell by 3 percent in June, the first decline since in February.In recent months, major homebuilders like D.R. Horton Inc., Toll Brothers Inc. and Pulte Homes Inc. have lowered their full-year forecasts because of slowing sales, increased inventories and high cancellation rates.
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