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U.S. mortgage demand idles despite low loan rates

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U.S. home loan demand fell for a third straight week though fixed mortgage rates slid near all-time lows, with potential buyers still unnerved by the jobs market, Mortgage Bankers Association data showed on Wednesday.

While the housing market is seen unlikely to plunge anew, it lacks traction. Unemployment and underemployment prevent many buyers from making such a big financial commitment.

Loan applications to buy homes and refinance declined last week despite average 30-year mortgage rates dropping 0.03 percentage point to 4.44 percent. At a record low dating back to 1990, the rate fell to 4.43 percent last month.

"I don't think we're going to see massive dips like we did before, but housing can't recover until employment recovers," said Margaret Kelly, chief executive of RE/MAX in Denver.

The housing market has been whip-sawed by a surge in demand before, and a plunge in demand after homebuyer tax credits ended on April 30.

Now the market enters a seasonally slower period, when sales typically slow after the school year begins and the winter approaches.

The industry group's mortgage market index that includes both purchase and refi applications fell 1.4 percent last week, seasonally adjusted, with purchase loan demand down 3.3 percent and refi requests off 0.9 percent

Overall loan demand has grown over the past year, but refinancing far overshadows home buying, the MBA said.

Applications to buy homes sank 38 percent from a year ago  while refinancing requests jumped 51 percent.

About 8 of every 10 loans requested are for a refinance rather than a purchase.

The latest housing data depict a market that is scraping along the bottom.

New building rose to a four-month high in August and permits to build also increased, though single-family permits dropped for a fifth straight month.

Home sales reports later this week are seen showing improvement, from deeply depressed levels.

While borrowing costs and home prices are low, lending practices remain restrictive and a record stockpile of unsold foreclosed properties looms over the market.

"Home ownership is still the American Dream," Kelly maintains. ``But what will change is the fact that for probably the last 10 years plus, people thought they could get into a home, live in it for three years, sell it and make 100 or 50 percent. That doesn't happen anymore."

 As buyers become more realistic about the financial gains in housing, as well as more confident about jobs, sales will pick up, she said.

The Federal Reserve on Tuesday opened the door wider to giving more support to the economy, and reiterated its plan to keep interest rates near zero.

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