Surge in mortgage loan applications follows Fed rate cut.

WASHINGTON - Demand for mortgage loan applications soared in early July, suggesting the Federal Reserve's latest rate cut is starting to boost the housing industry, according to a report yesterday by the Mortgage Bankers Association.

The report came as the Commerce Department said June housing starts fell 3.2% in June to a seasonally adjusted annual rate of 1.167 million units, with declines in both the single-family and multi-family sectors.

The total number of loan applications to mortgage bankers for the week ended July 10 jumped 71.5%, while loan volume shot up 76.2%, the survey of member firms says. The Fed cut the discount rate to 3% on July 2.

The survey also says refinancing applications accounted for over 59% of all applications, up from 40% the week before.

While some of the rush for credit reflected the fact firms were closed July 3, the week before the latest survey, "the larger part of the increase" is linked to the Fed's moves to lower short-term rates, the association said in its report.

The figures suggested the latest drop in mortgage interest rates will help give the industry some momentum that could spill into the general economy. The housing industry flattened out in recent months after a burst of business earlier in the year.

The drop in June construction starts reported by the Commerce Department followed a revised increase of 11% in May. Starts of single-family homes fell 2.4% to 1.01 million units, and starts of multi-family units fell 7.6% to 157,000 units.

"Basically, the housing market has been flat for four of five months," said David Berson, chief economist for the Federal National Mortgage Association. "It has lost its forward momentum."

With the latest drop in rates, Mr. Berson predicted, the pace of starts in August and September will be "more perceptible."

However, David Seiders, chief economist for the National Association of Home Builders, said many construction firms are not optimistic that lower rates will do much to help housing, given the high unemployment rate and other signs of softness in the economy.

"The feeling is that even though the Fed has cut rates, we're losing momentum rather than gaining it. The buy side of the market is just not coming together." he said.

"We don't have signals from our builders in the field that buyer traffic has picked up," he added. "We took a survey in early July and were told that things really haven't changed. Builders are telling us that it's not the rates that are the issue, anyway. It's the perception of the economy and the belief that housing is no longer a terrific investment."

Lower rates will encourage some people to come into the housing market, Mr. Seiders said, but "we're also going to lose some because of the deterioration in the job market."

"It all comes back to jobs," said Evelina Tainer, president of Simply Economics, a Chicago consulting firm. "The Fed can lower rates, but lower rates can only do so much. If people are still scared about their jobs, the fact that rates fell will not push them to buy homes."

Still, analysts agreed that refinancings can help spur the economy because they provide extra cash for home owners to spend.

Mr. Seinders said his group's latest forecast calls for housing starts of 1.2 million this year, which would be up modestly from 1.04 million in 1991, the worst year for the industry since 1946.

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