US home loan demand falls to lowest level this year

Here's an interesting little side story from Yahoo News:

NEW YORK (Reuters) - Consumer demand for home mortgage loan applications fell last week to the lowest level this year despite a marked drop in interest rates, as industry trade group said on Wednesday.

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity or the week ended March 17 decreased 1.6 percent to 565.0 from the previous week's 574.4, its lowest level of 2006.

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.31 percent, down 0.11 percentage point from the previous week's 6.42 percent level, a near four-year peak.

Fixed 15-year mortgage rates averaged 5.99 percent, down from 6.06 percent the previous week. Rates on one-year adjustable-rate mortgages (ARMs) increased to 5.68 percent from 5.64 percent.

"A lot of consumers have been having affordability problems, which is why a lot of them have been taking out ARMs," said Chen. "But with ARM rates rising, fewer people have been able to afford a home, which was also behind last week's decline in applications."

With rates on ARMs rising last week demand for floating-rate products dropped, Chen said.

The ARM share of activity fell to 28.3 percent of total applications from 28.8 percent the previous week. ARM demand reached a 2005 high of 36.6 percent in late March.

I find it interesting that US home loan demands are falling, just as my previous post talked about new home prices and sales have also fallen. So there is an interesting correlation here. I also find Chen's remarks interesting, "A lot of consumers have been having affordability problems...." What kind of affordability problems are we talking about here Chen? Credit card debt? Health care costs? Job layoffs and outsourcing? When you turn on the TV, all the home loan mortgage commercials you see are for adjustable-rate mortgages. The mortgage companies know they can make more money off consumers who take out adjustable-rate mortgages at a time when the Feds are raising interest rates. And I still have to wonder how many of these mortgages are aimed at the sub-prime market, with consumers that have credit problems. How many of these folks are in trouble? Could it be that consumers are now waking up to the dangers of adjustable-rate mortgages, especially if they are also hit with high credit card debt, job loss, or increasing health care costs?

An interesting story here. I'm not sure where it is going yet.