Mortgage Activity Rises, Rates Dip

WASHINGTON ( TheStreet) -- Mortgage applications increased 5% last week as mortgage rates edged lower.

The volume of mortgage loan applications increased 5% on a seasonally adjusted basis in the week ending Jan. 14, the Mortgage Bankers Association said early Wednesday. Mortgage activity rose 2.2% in the prior week.

Refinancing application volume jumped 7.7% from the previous week, following a 4.9% uptick in the prior week. Home-purchase loan applications fell 1.9% in the week, on a seasonally adjusted basis, after falling 3.7% a week earlier. On an unadjusted basis, the MBA's purchase index was 16% lower than in the year-earlier week.

"Mortgage rates have moved somewhat lower since the beginning of the year, as mixed data on the job market continue to cloud the outlook for the economy," said Michael Fratantoni, MBA's vice president of research and economics. "Refinance applications have picked up, as borrowers take advantage of lower rates, but purchase applications remain quite low, indicating that home sales are unlikely to pick up any time soon."

A total of 73% of all loan applications last week were for refinancing existing mortgages, up from a 72.1% share in the prior week.

The average rate on a 30-year fixed mortgage edged lower to 4.77%, from 4.78% in the prior week. It was the third consecutive week of declines in the 30-year fixed rate but remains below the survey's seven-month high observed three weeks ago. Still, mortgage rates remain near all-time lows.

While the housing market is unlikely to materially improve in the near future, there are some signs of future recovery.

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Early Wednesday the Commerce Department reported that applications for building permits spiked 16.7% in December, pointing to potential strengthening in demand for future homebuilding activity, though homebuilders began construction on 4.3% fewer homes in the month.

"As we emerge from the traditionally slow holiday season, builders continue to look for signs of improvement in the economy, home buyer demand and builder and consumer credit conditions," said Bob Nielsen, a home builder from Reno, Nev. and 2011 chairman of the National Association of Home Builders.

Though a restrained level of optimism is fair, the short-term housing picture remains fairly grim.

"At this point, housing remains on the sidelines of a weak economic recovery as consumers and builders wait for clear and consistent indications that jobs and economic output are reviving," said NAHB Chief Economist David Crowe. "Meanwhile, the problems that builders continue to confront in obtaining production financing, and in maintaining performing lines of credit, threaten to significantly slow the onset of a housing recovery."

A shadow inventory of homes could take two to three years to clear to a point where housing supply and demand begin to match up, Kevin Brungardt, CEO of RoundPoint Financial, a mortgage origination and servicing firm, told the TheStreet last month. No acknowledged housing bottom will appear until that shadow inventory is significantly curtailed, he said.

Homebuilders should expect material dampening of new-home purchases until then, Brungardt forecast. Current homeowners will also continue to be impacted unfavorably.

Brungardt added that the recent spike in mortgage rates -- a jump of 70 basis points over a short period of time -- also worked to delay a housing market recovery. Rates are still historically low, he conceded, but need to stay in the 4.5% to 4.75% range in order to fuel a meaningful recovery. He expects mortgage rates will fall again and then level out for a period of time.

The homebuilder sector is well off its late-spring peak, when buyers were rushing to take advantage of federal tax credits for homebuyers, and is only slightly higher than at the beginning of 2010. Whereas other sectors have begun a rebound in earnest, the housing sector continues to lag.

The SPDR S&P Homebuilders ( XHB), an exchange-traded fund that tracks the homebuilder sector, remains more than 60% off its peak of $46.08 in early 2006. The iShares Dow Jones US Home Construction ( ITB) ETF remains more than 70% off its peak of $50.10 in the spring of 2006.

Among individual builders, Toll Brothers ( TOL) was 2.4% lower in late-morning trading. Toll Brothers surprised investors with a return to year-over-year profitability in its fiscal fourth quarter, and recently said deposits jumped 10% in the second half of November compared with year-earlier results.

Lennar ( LEN) lost 2.7%. Last week, Lennar posted better-than-expected fiscal-fourth quarter earnings but said new-home deliveries were down 12%.

Small-cap builder KB Home ( KBH) fell 2.1% Wednesday morning. KB Home recently posted a surprise quarterly profit and said fewer homes delivered in its recent quarter was partially offset by an increase in the average selling price.

Small-cap peer Hovnanian Enterprises ( HOV) fell 3.1%. Hovnanian sold 13% fewer homes in its fiscal fourth quarter, while completed sales fell almost 17% year-over-year, despite narrowing its net losses.

Elsewhere, D.R. Horton ( DHI) lost 2.7% and PulteGroup ( PHM) fell 2.5%.

Hesitancy among potential home buyers has been a key driver of builders' low sentiment in recent months as uncertain consumers did not yet feel secure enough with the jobs market and overall economy to make such large purchasing decisions.

Pending home sales rebounded 3.5% in November but remained 20.5% lower than in the year-earlier month. Data on December's pending home sales is expected to be reported on Jan. 27.

New-home sales rose 5.5% in November but were 21.2% below year-earlier levels. Sales of newly built homes are expected to have risen to an annualized rate of 300,000 in December, from 290,000 in November. December's new-home sales data is expected to be released on Jan. 26.

-- Written by Miriam Marcus Reimer in New York.

>To contact the writer of this article, click here: Miriam Reimer.

>To follow the writer on Twitter, go to @miriamsmarket.

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