Sign of hope seen in weak home market

NEW YORK -- U.S. mortgage applications rose last week to the highest level in nearly four years, fueled by demand for home purchase loans as interest rates hovered near recent lows, an industry group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage applications, which includes both purchase and refinance loans, for the week ended Feb. 1 rose 3 percent to 1,086.6, its highest since the week ended March 26, 2004.

The sharp rise in home purchase applications last week may offer a glimmer of hope for the hard-hit U.S. housing market.

Bob Walters, chief economist at Quicken Loans, an online mortgage lender in Livonia, Mich., said those seeking to purchase a home have had plenty to cheer about in recent weeks as long-term interest rates plummeted to near historic lows.

"Right now (buyers) have the best of both worlds," he said. "Home prices have become more affordable due to a sizable inventory of unsold homes, and they can finance their purchase at decade-low interest rates."

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 5.61 percent, up 0.1 percentage point from the previous week and 0.12 percentage point above where it stood two weeks prior when it reached its lowest since late June 2005.

Interest rates were below year-ago levels at 6.23 percent.

Many analysts, however, say the MBA's data has been skewed in recent months as prospective borrowers have been filing multiple applications to obtain a single loan due to widespread tightening of lending standards.

The MBA's data also counts all applications, including borrowers who are ultimately denied.

Furthermore, the MBA's data only includes retail lenders, which have most probably witnessed an increase in applications as wholesale lenders pull back from the market, according to Michelle Meyer, an economist at Lehman Brothers in New York.

"The home purchase data is incredibly volatile on a weekly basis and last week's jump does not suggest a turnaround in home sales," she said. "It is quite unreliable and a poor indicator of future home sales because purchase applications have been little changed over the past year and a half while home sales have fallen sharply."