Mortgage demand slides despite low loan rates

NEW YORK (Reuters) - Demand for U.S. home loans fell for a third straight week last week although mortgage rates fell to or near record lows, an industry group said on Wednesday.

The Mortgage Bankers Association's seasonally adjusted mortgage applications index, which includes both refinancing and home purchase demand, dropped 4.9 percent in the week ending September 2.

The MBA's seasonally adjusted refinancing application index fell 6.3 percent while its gauge of loan requests for home purchases climbed 0.2 percent.

Fixed 30-year mortgage rates averaged 4.23 percent, down from 4.32 percent the prior week and the second lowest rate since the group began its survey nearly 22 years ago.

Fifteen-year loan rates averaged 3.41 percent, down from 3.49 percent a week ago to a new survey low.

"Despite these rates, refinance application volume fell for the third straight week and is more than 35 percent below levels at this time last year," Mike Fratantoni, MBA's vice president of research and economics, said in a statement.

"Purchase application volume remains relatively flat at extremely low levels, close to lows last seen in 1996," he said.

Rock-bottom borrowing costs did breathe some life into the housing market during the summer, boosting demand for purchase and refinance loans from extremely low levels.

But housing remains in a "deep freeze," and a stumbling block for the broader U.S. economy, HSBC Securities economists Kevin Logan and Ryan Wang wrote in a Tuesday report. The still-excessive inventory of unsold homes keeps depressing prices.

"The ongoing process of household debt deleveraging and balance sheet repair creates another persistent headwind on the economy that is closely related to the housing market," they wrote.

Concerns about the wealth effect, along with ongoing steep unemployment and financial market turbulence, keep many potential buyers from committing to such a large purchase.

"In my line of work, we're doing okay with rates dropping, but it doesn't mean we don't worry about the rest of our money ... whether it's going to lose its value," said Naela Sharuk, senior loan officer at Mortgage Master Inc in Walpole, Massachusetts.

The 30-year fixed rate loan hit its lowest rate of 4.21 percent, just 0.02 percentage point below the current rate, last October, the MBA said.

Many borrowers who could refinance at these low rates have already done so, several housing analysts said.

On the purchase side, consumers often purchase homes to move in time for the start of a new school year.

"Purchases boomed for me through the summer but have started to slow down," said Sharuk. "It's the end of summer, it's classic."

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