World Economy

Higher US Mortgage Rates Slow Loan Demand

Higher US Mortgage Rates Slow Loan DemandHigher US Mortgage Rates Slow Loan Demand

Applications for US mortgages slipped from a three-plus year high last week as home borrowing costs rebounded from their lowest levels in more than three years, according to data from an industry group released on Wednesday.

Interest rates on 30-year fixed-rate mortgages, the most widely held type of US home loans, climbed with a jump in benchmark treasury yields in the wake of encouraging domestic economic data and Wall Street hitting record highs, Reuters reported.

Thirty-year mortgage rates approached their record lows two weeks ago as the 10-year treasury yield reached historic lows on fears about the repercussion on global economic growth from Britain’s vote to leave the European Union and bets on more stimulus from overseas central banks to cushion their economies from Brexit.

The Mortgage Bankers Association said its seasonally adjusted index of total mortgage activity fell 1.3% in the week ended July 15 from the previous week.

The group’s gauge on refinancing applications fell 1% from the prior week when it reached its highest level since June 2013.

It’s seasonally adjusted gauge on loan requests for home purchases, a leading indicator of home sales, declined 2% last week.

Share of weekly refinancing requests was 64.2% of total applications, compared with 64% the previous week, the Washington-based group said.

Average rate on “conforming” 30-year home mortgages, or loans with balances of $417,000 or less, rose to 3.65%, MBA said.

The prior week’s 3.60% was the lowest 30-year average rate since May 2013 and not far from the historic low of 3.47% struck in December 2012, according to MBA data.

The benchmark 10-year treasury yield touched a record low of 1.32% on July 6. It was 1.57% on Wednesday, up 1 basis point from late on Tuesday, according to Reuters data.

According to a recent New York Times column by economist Robert Shiller, who won the Nobel Prize and teaches at Yale, owning real estate isn’t likely to keep up with inflation and is generally a poor investment, Forbes reported.

Shiller, an expert on the last credit bubble and behavioral economics in general, has examined a century’s worth of data on land and home prices and discovered that one shouldn’t count on making a killing on real estate.

Home prices, Shiller found, lag the gross domestic product growth when you subtract inflation:

“To put this in perspective, note that the real US GDP grew 15.5 times—or, on average, 3.2% a year—from 1929, the year official GDP numbers began to be kept, to 2015. That’s a much higher growth rate than for real estate.”