Home loan demand falls despite rate plunge

The Mortgage Bankers Association said its seasonally adjusted index of mortgage application activity , which includes both refinancing and purchasing loans, for the week ended September 22 fell 4.9 percent to 566.6 from the previous week's 595.8, its highest level since April.

Applications were 21.4 percent below their year-ago level.

James O'Sullivan, economist at UBS Securities in Stamford, Connecticut, said the indexes tend to be volatile on a weekly basis, but the momentum for the market is downward.

"Certainly in housing, it's a contraction," he said. "If there was such a term for the sector, it would probably qualify as a recession."

Borrowing costs on 30-year fixed-rate mortgages, excluding fees, averaged 6.18 percent, down 0.18 percentage point from the previous week, to its lowest level since February. Interest rates were above year-ago levels of 5.85 percent, but sharply below a four-year high of 6.86 percent touched in June.

Low mortgage rates fueled the most recent housing boom, but last week's plunge in rates failed to lure consumers.

The MBA's seasonally adjusted purchase mortgage index , widely considered a gauge of U.S. home sales, fell 5.5 percent to 375.9. The index was also substantially below its year-ago level of 483.1, a drop of 22.2 percent.

The group's seasonally adjusted index of refinancing applications dropped 4.1 percent to 1,677.5, down 20.4 percent from a year ago when the index stood at 2,106.6. The refinance share of applications rose to 44.3 percent from 43.7 percent the previous week, its highest level since September 2005.

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