Mortgage applications shoot up

More people are applying for home loans, but that doesn’t mean they are getting them.

In a rare piece of good news for the mortgage industry, applications for home loans rose last week to a nearly four-year high after a sharp drop in interest rates on 30-year fixed-rate loans.

Much of the surge in applications since the start of the year has been from homeowners looking to refinance at lower rates.

The real estate and mortgage industries hope that lower interest rates also will bring more buyers into the market, jump-starting the volume of home sales -- as well as mortgages on home purchases.

“Steep price declines in many areas coupled with historically low interest rates may be inducing buyers to get off the sidelines,” said Lawrence Yun, chief economist with the National Assn. of Realtors.

But Yun and other experts say it’s too early to tell whether that will happen.

“You have to keep in mind that this is just applications,” said Orawin Velz, senior director of economic forecasting at the Mortgage Bankers Assn. in Washington. “This may not translate into a boost in home sales.”

The lender trade group said Wednesday that its index of total mortgage applications rose 3% last week to its highest level since March 2004 and applications were up 73% from a year earlier.

The latest increase was driven by a 12% surge in applications for loans on homes being purchased, but the reason total applications were near a four-year high was that applications for refinance loans had tripled since late December, though they retreated 1% last week.

In fact, the volume of applications for purchase loans, which is highly volatile, remains below where it was for much of last year. The application data are seasonally adjusted.

Even the elevated level of refinance applications might not translate into a higher volume of actual refinancings. The reason: It’s so tough to get a mortgage these days that consumers may apply for multiple loans before securing one -- if they’re able to get a loan at all.

“We can’t say that this is going to be a refinancing boom or that we have hit bottom in the housing market, but it shows renewed interest,” Velz said.

Still, it was an encouraging note in a market that’s been battered by rising delinquencies, foreclosures and declining home values.

Last week a survey found that home prices had plunged an average of 8.4% in major metropolitan areas nationwide. Prices in Los Angeles are off roughly 12% from their September 2006 peak, according to the Standard & Poor’s Case-Shiller index.

The main reason loan demand is up is that interest rates are down. Recession fears have lowered yields on the 10-year Treasury note, a benchmark for rates on 30-year fixed-rate mortgages. Although rates edged up slightly in the mortgage bankers’ weekly survey, they’re about a half-point lower than they were two months ago, Velz said.

The economic stimulus plan that’s taking shape in Congress could have a positive effect on home sales and prices, particularly in high-cost states such as California, Velz said.

The plan’s main feature is cash rebates for taxpayers, but one provision also would raise the cap, currently set at $417,000, on so-called conforming loans, which can be sold to government-sponsored investors Fannie Mae and Freddie Mac.

Because conforming loans are easily sold, they’re also relatively cheap. Rates on 30-year fixed-rate conforming loans are running at about 5.6% compared with 6.6% for so-called jumbo loans for amounts over $417,000.

The median-priced home in Los Angeles sells for more than $487,190, down 16.5% from $569,350 a year ago, according to the California Assn. of Realtors. The median home price in Orange County is $638,390, down from $692,980 a year ago.

If the limit on conforming mortgages rose, rates on many big loans would probably fall. That could help stabilize values in high-cost states, Yun said.

But neither Velz nor Yun expects a quick turnaround. Both predict that prices will stabilize, and possibly start to rise, in the second half of the year.

La Canada real estate agent Rowena Emmett echoed the sentiment.

“We have buyers, but they are waiting for things,” she said.

Some are hoping that conforming loan limits will rise, giving them the opportunity to borrow more cheaply. Others are waiting because they think housing prices have further to fall, she added.

“Some people are making offers, but they are not full-price offers,” she said. “We have a little bit of a disconnect right now. Sellers think they should get the price they’re asking. But buyers think they should get the price that they think the house will be worth six months from now.

“February typically is not a good month, but we think we’re going to have a good spring.”

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kathy.kristof@latimes.com