Mortgage applications fall to 12-year low despite attractive rates

Mortgage applications for home purchases in the U.S. have fallen to the lowest level in 12 years, indicating the housing market is facing a hurdle with unemployment at a 26-year high.

The Mortgage Bankers Association's index of applications dropped 4.7 percent in the week ended Nov. 13 to 210.6, the lowest level since November 1997. The total applications index fell 2.5 percent to 611.7 from 627.5.

President Obama earlier this month signed legislation extending the first-time homebuyers tax credit through April, while the Federal Reserve's program to purchase housing debt is valid through March.

The stimulus aims to spur demand that's threatened by mounting unemployment.

"Now that the Fed's program has been extended and the government has extended its program, I would expect things to improve," Christopher Low, chief economist at FTN Financial in New York, said before the report. "If you don't see an improvement within the next couple of weeks, that would indicate a problem."

The association's refinancing gauge fell 1.4 percent to 2,955.4 from 2,998.2. The share of applicants seeking to refinance loans rose to 72.9, the highest level since May, from 71.5 percent the prior week.

Applications dropped even as borrowing costs decreased. The average rate on a 30-year fixed-rate loan fell to 4.83 percent last week from 4.90 percent.

The rate reached 4.61 percent at the end of March, the lowest level since the group's records began in 1990.

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $526.48, or about $84 less than the same week a year earlier, when the rate was 6.17 percent.

The average rate on a 15-year fixed mortgage decreased to 4.32 percent from 4.33 percent the prior week. The rate on a one-year adjustable mortgage fell to 6.82 percent from 6.85 percent.

Obama on Nov. 6 signed into law the first major expansion of February's stimulus plan, pushing out the deadline for first-time buyers to close on a transaction to April 30 from Nov. 30. The credit is worth up to $8,000.

The new measure also added buyers who have owned a home for at least five years, making them eligible for a credit of up to $6,500.

Uncertainty over whether the credit would be extended weighed on homebuilder confidence in November. The National Association of Home Builders/Wells Fargo index of builder confidence held at 17 in November, the group said Tuesday.

Fannie Mae, which is responsible for almost one in four U.S. residential mortgages, said Tuesday the three-year housing slump may end in 2010 with an 11 percent jump in home sales as the recession is "unofficially" over.