The Mortgage Bankers Association’s index of applications to purchase a home or refinance a loan decreased 13 percent to 649.7 in the week ended Feb. 27 from 743.5 a week earlier. The group’s refinancing measure fell 15 percent and the purchase gauge declined 5.6 percent.

Mounting job losses are deterring potential buyers from entering the market even as homes have become more affordable. At the same time, current homeowners may be waiting for mortgage rates to fall again and for President Barack Obama’s $275 billion plan aimed at making refinancing easier to go into effect this month before applying for a new loan.

“Home sales continue to soften despite increased affordability,” Zach Pandl, an economist at Nomura Securities International Inc., said before the report.

The refinancing gauge dropped to 3063.4 from 3618.0 last week, the bankers group said. The purchase index decreased to 236.4, just shy of the eight-year low reached in early February.

The average rate on a 30-year fixed mortgage loan increased to 5.14 percent last week from 5.07 percent a week earlier. The rate was a record-low 4.89 percent in the week ended Jan. 9.

At the current rate, monthly borrowing costs for each $100,000 of a loan would be about $15 higher than in the record- low week.

The share of applicants seeking to refinance loans fell to 66.9 percent from 69.7 percent the prior week.

15-Year Mortgages

Today’s report also showed the average rate on a 15-year fixed mortgage increased to 4.73 percent from 4.71 percent. The rate on a one-year adjustable mortgage held at 6.13 percent.

A report from the National Association of Realtors yesterday showed fewer Americans signed contracts to buy previously owned homes in January. The index of pending home resales fell 7.7 percent after a 4.8 percent gain in December.

Pending resales are considered a leading indicator because they track contract signings. The Realtors’ group said last week that existing home sales, which are tallied at closings a month or two after the contract is signed, dropped to a 4.49 million annual rate in January.

Sales are dropping even as buying is within reach of more Americans. The Realtors’ affordability index, which takes into account borrowing costs, prices and incomes, reached a record high 166.8 in January.

Obama’s Plan

Obama last month said his administration will use $75 billion to bring down mortgage rates and encourage loan modifications to keep Americans in their homes. Federal Reserve Chairman Ben S. Bernanke said policy makers may need to expand aid to the banking system beyond the $700 billion already approved and take other aggressive measures even at the cost of soaring fiscal deficits.

The drop in sales and resulting glut of new and existing homes on the market has pushed down prices. Home prices in 20 U.S. cities fell 18.5 percent in December from a year earlier, according to the S&P/Case-Shiller index released Feb. 24.

Housing-related companies are also struggling. Home Depot Inc., the largest home-improvement retailer, had a fourth- quarter loss, closed its Expo design unit and is cutting about 7,000 jobs.

“The home improvement market in 2009 will remain just as challenging as 2008,” Chief Executive Officer Frank Blake said in a statement on Feb. 24.

 SOURCE: Bloomberg