Loans Drop Despite Low Rates, Low Prices in Foreclosure Listings

Time icon April 30th, 2009 by Autor Joseph Smith

During the week ended April 24, the number of applications for mortgage loans and loan refinancing dropped to its lowest level since the middle of March despite the drop in mortgage rates and the availability of cheap but good homes in listing of foreclosed homes, according to a report from the Mortgage Bankers Association.

The number of applications for mortgage loans and loan refinancing dropped to its lowest level since the middle of March

The index of mortgage loan applications fell to 960.6, the lowest point since the week of March 13, which had an index of 876.9. The purchase index also fell to 251.6, the lowest in two months.

Similarly, applications for loan refinancing dropped by 21.9 percent, dragging down the total loan application index by 18.1 percent.

Some economists are disappointed especially by the timing of the decline, since it came in the middle of the spring home selling season when more homes are available at good prices from foreclosure listings. The April 24 drop marked a two-month record low in number of home loan applications.

Chuck Dannis, head of real estate appraisal firm Crosson Dannis in Dallas, said the decline indicated that low mortgage rates and attractive prices in foreclosure listings are not enough to convince prospective home buyers that it is time to buy.

Rates for 30-year mortgage loans declined during the week ended April 24 by 0.11 points to 4.62 percent, almost the same percent with the 4.61 percent set during the week of March 27 and much below the 6.01 percent during the same week in 2008.

Of the total home loan applications during the week of April 24, about 75 percent were refinancing applications, representing efforts by homeowners to prevent their houses from being added to foreclosure listings.

Dannis pointed to unemployment and lack of job security as the main causes for the decline in home loan applications despite record low mortgage rates and record low home prices in foreclosure listings. He said people naturally hesitate to buy a home if they see job layoffs all around them.

The nationwide unemployment rate is at the highest level in over 25 years and it is expected to soar higher as the country struggles to get out of the 16-month recession.

The adjusted refinance index of 5,108.2 for the week ended April 24 was down from the 6,813.5 index reached in the first week of April. Even so, the April 24 index was well above the 2,722.7 index in the first week of February, when the 30-year loan rate was over 0.50 percentage point higher.

Some economists contend that despite some signs of home price and sales stabilization, it will take a while for the housing downturn to start recovering, as foreclosure listings continue to push down prices. The S&P/Case-Shiller 20-city price indexes have fallen by over 30 percent from their peaks.

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