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In a continuation of the mixed signals we keep getting from the US housing market, this week’s data on mortgage applications shows a decline of -3.3% from the previous week. The largest portion of the drop came in refinancing of conventional mortgages, down -6.1% from a week ago.

According to the Mortgage Bankers Association (MBA), the seasonally adjusted purchase index rose 2.7% and the unadjusted purchase index rose 3.6%.

The average contract interest rate on a conforming 30-year loan fell to 4.04%, the lowest 30-year fixed interest rate in the history of the MBA’s report. The interest rate on 30-year fixed FHA loans fell to 3.81%, again the lowest since the MBA began reporting in 1990. Rates for 15-year fixed and 5/1 adjustable rate mortgages were also at all-time lows.

If rates are at 20+ year lows and there is plenty of inventory at very low prices, why aren’t more people getting mortgages? Part of the reason is that bank’s have been demanding gold-plated credit from borrowers. We noted earlier this month that closed loans on refinancings in February required a FICO score of 770 or better and a loan-to-value ratio no more than 65%.

Another part of the reason could be that home ownership is no longer viewed to be worth the effort and cash it takes to buy a house. Renting is more attractive, and the evidence for that is the number of private equity firms buying up distressed properties not for resale but to rent. This may change eventually, but right now renting seems like a better deal to many people. If the financial crisis proved anything it is that home values don’t always rise.

Paul Ausick