Homeowners continued to refinance their mortgages at a record pace last week, as interest rates stayed near 25-year lows.

For many segments of the mortgage industry that's bad news, because prepayments have been draining servicing portfolios and requiring faster amortization of servicing rights.

But there has been some good news as well. "We saw encouraging numbers in the release of August housing starts," said Frank Nothaft, deputy chief economist of the Federal National Mortgage Association. "And next week we expect the home sales data to confirm a rebound in the housing market."

Applications Climb

A seasonally adjusted index of mortgage applications for home purchase, rather than refinancing, climbed again last week, to 184.4 from 182.1 a week earlier, the Mortgage Bankers Association said. That means purchase applications have climbed by 84% since March 1990, the base period.

In a recent review of housing, David Stephens, an executive vice president at Lomas Mortgage USA, said the market was like a ship sailing along on a fresh wind -- low interest rates -- with its anchor out in the form of weak job trends.

But he added that there were some bright spots. "Some 14 states enjoyed job growth of 2% or greater during the past years," he said.

He also pointed out that the number of U.S. households owning homes grew by more than 1 million in the past four quarters, while renter households shrank by 222,000. "No surprise in light of the ownership incentive offered by low mortgage rates," he said.

Weak Link

But California remains a major weak spot. "The state has experienced a net loss of more than 200,000 jobs in the past four years," Mr. Stephens said. "Since midyear 1990, payrolls in the state have declined by 575,000. Housing in California will be weak until the state's job market turns around."

Lomas reported that eight of the 10 hottest housing markets in the country in the first half were in the Southeast, especially Florida.

The exceptions, as measured by total housing permits issued in the half relative to population, were Las Vegas, No. 1, and Phoenix-Mesa, No. 5. !!!BEGIN TABLE Housing Markets Hottest U.S. Housing Markets Index of housing permits relative to populationLas Vegas 16.2Fort Myers-Cape Coral, Fla., 12.5Orlando 10.6Raleigh-Durham, N.C. 10.4Phoenix-Mesa 9.8West Palm Beach, Fla. 9.6Atlanta 9.4Space Coast, Fla. 8.7Daytona Beach, Fla. 8.1Charlotte, N.C. 7.7National average 4.3!!!END TABLE

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