Home buying applications sank for a fifth straight week to a fresh 13-year low, the Mortgage Bankers Association said on Wednesday, suggesting that tax credits had robbed more from future sales than expected.
Demand for loans to purchase houses fell 5.7 percent in the week ended June 4 to the lowest level since February 1997, even after adjusting to account for the Memorial Day holiday.
Home buyers have been on hiatus since many rushed to sign purchase contracts ahead of the April 30 deadline for up to $8,000 in federal tax credits.
It's very worrying, said Paul Dales, U.S. economist at Capital Economics in Toronto, said of the degree of payback from more than a year of federal buyer tax incentives.
We have to face the unfortunate fact that the housing market really isn't out of the woods yet, he added. At a time when the economic recovery is still looking fairly fragile it won't be a good thing if people are moving less and spending less on buying new durable goods like fridges and sofas.
There is no political will to reinstate the tax credit, housing experts agree.
Last week also included news of tepid private-sector job creation in May.
Purchase applications are now 35 percent below their level of four weeks ago, as homebuyers have not yet returned to the market following the expiration of the homebuyer tax credit at the end of April, Michael Fratantoni, MBA's vice president of research and economics, said in a statement.
Refinancing activity, which had gained steam as mortgage rates flirted with record lows, also suffered a set-back last week.
The MBA refinance index fell 14.3 percent after rising for four straight weeks, driving total mortgage applications down 12.2 percent in the week.
Mortgage rates remain affordable, with 30-year loans falling to an average of 4.81 percent from 4.83 percent.
At their record low, according to the MBA, the rate was 4.61 percent in March 2009, but the rate is 1/2 percentage point below the recent high of 5.31 percent in April.
Despite the historically low rates, Fratantoni noted several factors that are preventing another refinancing boom. Many homeowners have already refinanced, while others remain under water on their mortgages, have uncertain job situations, or have damaged credit and therefore may not qualify to refinance, he said.
Still, with purchase demand in a post-credit trough, refinancing represented 72.2 percent of all applications last week.