Home loan applications fall by 25%

02.12.09
By Sarah Beldo

It seems the magic formula for luring Americans back into the housing market has not been found, as both new and existing homeowners shy away from buying.

New figures from the Mortgage Bankers Association indicate that last week's demand for mortgage applications reflected the lowest point seen in eight years.

The association's index of mortgage loan application volume fell 25 percent, the refinance index declined 30 percent and the purchase index tumbled 9.8 percent to reach its lowest level since December 2000.

Some experts suggest that people are waiting to purchase a property because they suspect home prices have not yet bottomed out. Others may be holding out for the right mortgage rate, as the average rate for a 30-year home loan is predicted to fall.

Another factor contributing to scant movement in the housing market is concerns about unemployment. A number of economists say that until the employment outlook stabilizes, there are unlikely to be many families willing to take a chance on a new home.

Meanwhile, stricter lending criteria employed by banks have meant that not every prospective or current homeowner can expect to have their home loan application approved.

Financial institutions are looking for higher credit scores, a larger down payment and more documentation before approving a mortgage.

"Lenders are reluctant to underwrite mortgages to any potential homeowner without pristine credit," economist Ryan Sweet of Moody's Economy.com told Bloomberg.

The economic stimulus currently under consideration by Congress includes some incentives for people to purchase a home, such as a $15,000 tax credit.

And the Obama administration has been considering how best to spur lenders into lending.

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Some buyers are waiting for prices to drop further.