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February 26, 2008
Home Loan Applications Down Sharply
Announcements that U.S. mortgage applications are down and the Consumer Price Index is up are ominous signs that the economy is cooling. Investors and consumers are tugging at their collars over news that fewer houses will become homes and those homes will probably gonna hold less stuff.
On Tuesday, the Mortgage Bankers Association said its index of mortgage applications fell to its lowest level since early January, dipping 22.6% to 822.8 for the week that ended Feb. 15. Short-term interest cuts by the Fed aren't
helping would-be home-owners because their mortgages tend to be linked to longer-term rates and the 10-year yield has been rising on fears of inflation. (See "Bernanke Watch Next Week") Bush's stimulus plan is generous, but it isn't expected to redirect what appears to be an economy with a downward trajectory. (See "A Lifeline In The Mortgage Mess")
The terms of loans aren't sweet enough to entice a borrower staring down the barrel of a depressed economy. Borrowing costs on a 30-year fixed rate mortgage are up .37% from last week. Excluding fees, costs averaged 6.09%, the highest since late December. The silver lining on this announcement is that interest rates stayed below year-ago levels of 6.19%.
The MBA Index also reported that refinancing applications are down 27.9% to 3,533.8 for the week.
The news brought home loan company Washington Mutual (nyse: WM - news - people ) down 29 cents, or 1.75%, to $16.69. Homebuilder KB Home (nyse: KBH - news - people ) is also down 43 cents, or 1.81%, to $23.72. Pulte Homes (nyse: PHM - news - people ) is down 28 cents, or 1.98%, to $13.88.
As if news of more Americans being forced to rent and not own isn't depressing enough, the U.S. Labor Department Consumer Price Index announced more bad news Tuesday. January's CPI rates were only a point up, but the psychology of getting less for a each buck is likely to put a damper on the mood of investors and consumers alike. Headline inflation for January was .4% and it was expected to be .3%. Core inflation, excluding food and energy, is .3% instead of the projected .2%. Year-on-Year headline inflation is up 4.3%, and core CPI is up 2.5%.
Tuesday, the Automobile Association of America and the Oil Price Information Service reported that a gallon of gas hit an average of $3.032 in U.S.. Last month it was $3.015 and last year it was $2.256. More increases at the pump are likely because oil futures have shot up in price despite a reported decline in demand has to do with concerns about future supply. (See "Commodities Frenzy")
Posted by Post Scripts at February 26, 2008 08:32 AM