Finance counsels

Mortgage applications in the U.S. fell to a two-month low, hurt by declines in purchases that may reflect concern over the expiration of government tax credits.

The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan decreased 12 percent to 562.3 in the week ended Oct. 23, the third consecutive drop. The group’s refinancing gauge fell 16 percent, while the index of purchases declined 5.2 percent.

Americans may be waiting to see if they will qualify for an $8,000 first-time homebuyer tax credit which expires at the end of November. Lawmakers are debating extending the credit into 2010 amid signs the incentive program has helped the housing market stabilize and the economy recover from the worst recession since the 1930s.

Certainty on the program “would help buyers form their decisions,” said Michelle Meyer, an economist at Barclays Capital in New York. “Unfortunately, these things take time.” Even so, “the tax credit has amplified the recovery in housing,” she said.

Senate Majority Leader Harry Reid of Nevada and Senate Finance Committee Chairman Max Baucus of Montana, both Democrats, may seek to add the homebuyers extension to legislation extending unemployment benefits that may be debated as early as this week, according to Regan Lachapelle, an aide to Reid.

Senate leaders moved closer to an agreement on replacing the credit with a smaller one that expands access to more borrowers, two people familiar with the matter said yesterday.

Five-Month Low

The mortgage bankers’ refinancing gauge decreased to 2,352.5 from the previous week’s 2,808, today’s report showed. The purchase index fell to 254.9, the lowest level in five months, from 268.8.

The share of applicants seeking to refinance loans dropped to 62.3 percent of total applications last week from 65 percent.

The average rate on a 30-year fixed-rate loan declined to 5 payday advances.04 percent last week from 5.07 the prior week. The rate reached 4.61 percent at the end of March, the lowest level since the group’s records began in 1990.

At the current 30-year rate, monthly borrowing costs for each $100,000 of a loan would be $539, or about $77 less than the same week a year earlier, when the rate was 6.26 percent.

The average rate on a 15-year fixed mortgage rose to 4.53 percent from 4.51 percent the prior week. The rate on a one- year adjustable mortgage decreased to 6.79 percent from 6.86 percent.

More Sales

Recent reports show housing is steadying. Existing home sales in September jumped to the highest level in more than two years, according to data from the National Association of Realtors issued last week. The S&P/Case-Shiller home-price index climbed 1 percent in August from the prior month after adjusting for seasonal variations, the third consecutive gain, figures showed yesterday.

“The residential housing market appears to have stabilized, but it has done so at a very low level,” William Foote, chief executive officer of USG Corp., North America’s largest maker of gypsum wallboard, said Oct. 21 on a conference call. The Chicago-based company posted its eighth straight net loss last quarter as sales dropped 32 percent from a year ago.

Rising foreclosures, which return more homes to the market, remain a risk to the nascent recovery. Foreclosure rates will climb through late 2010, Jay Brinkmann, chief economist at the Mortgage Bankers Association, said this month. Unemployment is projected to exceed 10 percent by early 2010, economists in a Bloomberg survey predicted this month.

The Washington-based Mortgage Bankers Association’s loan survey, compiled every week, covers about half of all U.S. retail residential mortgage originations.

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