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Mortgage rates of 4% or less fail to drive up demand, survey finds

Lenders were offering 30-year fixed-rate mortgages to solid borrowers at an average of 3.95 percent this week, according to Freddie Mac, the ninth consecutive week of rates at or below 4 percent.

That wrapped up a year of record lows for the survey, which dates from 1971. In 1981-82, the average 30-year mortgage carried an interest rate of more than 16 percent, and the typical rate was above 8 percent as recently as 2000, Freddie Mac said. This past year, the average was 4.45 percent.

Despite the record low rates, applications for mortgages to buy homes dropped as the year ended, even after seasonal adjustments, the latest Mortgage Bankers Association survey found. Even the demand for refinance mortgages, which accounted for more than 80 percent of all applications, fell slightly.

"Remarkably low rates are not enough," said Mortgage Bankers Association economist Michael C. Fratantoni, noting that many homeowners have difficulty refinancing because of "lack of equity in their properties, poor credit and a weak job market."

With loans hard to get and demand for home loans waning, Morgan Stanley analysts titled their housing outlook for 2012 "The Year of the Landlord."

"While we had forecast lower prices [for 2011], we did hold out some hope that, at the very least, transactions would pick up slightly from 2010 levels," said the report from a team led by analyst Oliver Chang.

"However," the report said, "it proved to be too optimistic a prediction. Not only did total home sales fail to rise, but also mortgage applications for purchase continued to fall -- indicating that not only is tight mortgage credit limiting demand, but even the desire to buy a home continued to wane."

The recent bottom in rates stems from anxiety over the European debt crisis, which has increased demand for U.S. Treasury securities. That has depressed the yield on Treasurys, which act as a benchmark for mortgages.

This week's typical offering rate of 3.95 percent on the 30-year loan was up slightly from an all-time record low of 3.91 percent set a week earlier. The 15-year fixed loan averaged 3.24 percent, up from 3.21 percent.