The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity plunged by 38.8% to 732.1 in the week ended Jan. 23.
Fixed 30-year mortgage rates averaged 5.22% in the week, down from 5.24% the previous week and 4.89% in early January, the MBA said.
Rising U.S. government borrowing to pay for financial bailouts and expected stimulus to stave off recession have begun to increase Treasury yields, offsetting Fed efforts to drive mortgage rates lower, analysts said. Benchmark 10-year Treasury yields, which help govern mortgage rates, have climbed nearly a half-percentage point since late December to 2.53%.
The Fed's plans to lower home borrowing rates this year with purchases of up to $600 billion in mortgage-related securities had resulted in a spike in applications, mostly for homeowners seeking to refinance loans. Lower rates boosted affordability on homes, whose prices nationally have fallen more than 25%, to 2004 levels, according to Standard & Poor's/Case-Shiller indexes.
The National Association of Realtors on Monday said existing home sales rose 6.5% in December after prices dropped 15.3% from a year earlier. That report suggested sales have bottomed, according to Moody's Economy.com.
But skeptics assert that tight lending conditions and lower-than-expected appraisals will limit loan approvals. Higher rates would also cut savings via refinancings, a source of cash that could be recycled into the economy.
The MBA's seasonally adjusted index of refinancing applications plummeted 48% to 3,373.9 last week. The gauge of loan requests for home purchases declined 2.9% to 294.3.
U.S. home sales rise in December
Tax cut plans: Sizing them up
48 Home Depot stores will close; Nashville loses 1
Retail Sales
