Wed Aug 18, 2004
By Chris Reese

NEW YORK, Aug 18 (Reuters) - New applications for U.S. home loans rose last week while refinancings surged, as 30-year mortgage interest rates fell to their lowest level in over four months, an industry group said on Wednesday.

The Mortgage Bankers Association (MBA) said its seasonally adjusted market index, a measure of mortgage activity, rose for the week ending August 13 by 11.9 percent to 689.4 from the previous week's 616.1.

The Washington trade group's seasonally adjusted refinancing index jumped by 20.9 percent to 1,982.7 in the week ended August 13 from the previous week's 1,640.5.

"The jump in refinance loans comes after a fairly steady drop in rates over the last month," said Jay Brinkmann, MBA's vice president of research and economics.

Thirty-year mortgage rates, excluding fees, averaged 5.75 percent, down 0.05 percentage point from the previous week and down 0.47 percentage point from a year ago. The 30-year rates fell to their lowest level since the week of April 2, when they also averaged 5.75 percent.

"Rates are now about half of a percentage point below where they were this time last year, creating a refinance incentive for many borrowers who have taken out home loans since the middle of last summer," Brinkmann said.

PAST NO PROLOGUE

However, some economists cautioned not to read too much into the refinancing hike, as the number of people redoing their mortgages was down significantly from the first half of 2003, when mortgage rates were even lower.

"If you look at the end of May this year versus the end of May 2003 the refinancing index decline was 84 percent," said Steven Wieting, senior economist at Citigroup (C.N: Quote, Profile, Research) .

"Refinancings were falling in the whole back half of 2003 and are now at fairly stable levels -- and it should be a much smaller decline in refinancing activity on a year-to-year basis in the back half of this year," Wieting said.

Fannie Mae (FNM.N: Quote, Profile, Research) , the largest U.S. home funding source, said on Wednesday it expects U.S. mortgage refinancing originations to fall to $1.14 trillion in 2004, down about 57 percent from 2003, but still a very large number historically.

Refinancing originations should fall by a further 64 percent in 2005 as interest rates increase and the number of home owners able to refinance declines, Fannie Mae said in a statement.

Despite the overall refinancing decline, the U.S. housing market is showing continued resiliency.

The Washington trade group's purchase index, a gauge of new loan requests for home purchases, rose last week by 6.2 percent to 467.1 from 440.0 in the prior week.

Data released on Tuesday showed U.S. housing starts rebounded sharply in July after a bit of a June slump.

July housing starts jumped 8.3 percent to a seasonally adjusted annual rate of 1.978 million units, above Wall Street expectations and up from a revised June annual rate of 1.826 million, the Commerce Department said on Tuesday.

"Long-term mortgage rates are lower than the consensus expected," Wieting said, adding "these are rates that are historically fairly attractive for home mortgage borrowers both for home purchases and refinancings."

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