Mortgage Applications Ease Off as 2010 Comes to an End

Mortgage applications slowed down in the week before Christmas and increased the week after, while interest rates rose to a seven-month high, then retreated again, the Mortgage Bankers Association said Wednesday.

The group said that, on a seasonally adjusted basis, the index measuring mortgage loan applications decreased 3.9% for the week that ended Dec. 24 compared to the prior week, while for the week ending Dec. 31, the index increased 2.3%. On an unadjusted basis, the index decreased 23.7% and 10%, respectively.

Meanwhile, interest rates overall held relatively steady near their recent relative highs. For the week before Christmas, the average contract interest rate for 30-year fixed-rate mortgages increased to 4.93% from 4.84%, which Reuters notes was the highest rate since early May. For the week after Christmas, the same rate dropped back to 4.82%. The average contract interest rate for 15-year fixed-rate mortgages remained unchanged at 4.22% and increased to 4.23% in the respective weeks.

The Christmas week decline in the mortgage application index can be traced to a drop in the number of applications to refinance, as higher rates reduced the motivation of homeowners seek new terms on their debt. For that week, the index measuring refinances of loans decreased 7.2% from the previous week, while the index measuring purchase applications increased 3.1%. For the week after, refinance applications increased 3.9%, and purchase loan applications decreased 0.8%.

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What does all this say about the beleaguered U.S. housing market? No doubt, a softer application market lends a more somber note to signs of recovery in this struggling sector, but it's not all bad. Lately we've had some good news to accompany the less-encouraging news: There was an unexpected 3.9% rise in housing starts in November, and signed contracts to purchase homes rose in November, but home prices fell a worse-than-expected 1.3% in October.

Those who are focused on the more negative developments suggest that the housing market might be in for another downturn, with another wave of foreclosures ahead. DailyFinance's Charles Hugh Smith is certainly among them: He believes the housing market will remain unsettled in 2011. However, those looking at the more positive signs in the market, as well as the economic picture of the nation as a whole, are hopeful that better times are ahead for the sector.