(Reuters) - Home loan demand climbed last week but record low mortgage rates failed to light a fire in a market constrained by unemployment and tight lending practices.Mortgage purchase and refinancing applications rose by less than 1 percent in the first week of August, even as 30-year loan rates fell to 4.57 percent, the lowest in 20 years of record keeping by the Mortgage Bankers Association.
This contract rate, which excludes added lender fees and points, was down from 4.60 percent the prior week and 5.38 percent a year ago, the industry group said on Wednesday.
"Consumers don't have a sense of urgency right now," said Patrick Lashinsky, president and chief executive of real estate brokerage ZipRealty in Emeryville, California
"They think that interest rates seem to be continuing to go down, they don't expect home prices to go up, so instead of moving into home buying they're saving money for a downpayment, they're trying to improve their credit," he said.
The U.S. housing market is still adjusting to life without up to $8,000 in tax credits, which ended on April 30 and fueled spring sales at the expense of summer activity.
Many potential buyers are grappling with job loss or wage cuts, while sellers face a large pool of unqualified borrowers under more stringent lending guidelines, economists said.
The Federal Reserve on Tuesday took new steps to keep interest rates low to stimulate the economy, which it said has slowed in recent months.
Refinancings accounted for about 78 percent of all mortgage requests last week, continuing to far overshadow demand for loans to purchase homes.
The seasonally adjusted market index, which includes purchases and refinancings, climbed 0.6 percent last week, according to the MBA. The refi index rose 0.6 percent while purchase demand rose for the fourth straight week but by just 0.3 percent.
The average 15-year mortgage rate, meantime, also fell last week, from 4.03 percent to 3.95 percent, the lowest contract rate on record, the MBA said.
"Affordability is just way too attractive" for U.S. housing to enter a double-dip, said Greg Miller, chief economist at SunTrust Bank in Atlanta.
Many housing experts predict prices, which have already fallen roughly 30 percent from peaks set four years ago, to post a comparatively slim single-digit decline before stabilizing.
"I don't know that we're bringing too many people out of rental housing, but folks who are willing to drop prices and sell have an incentive to do so now when purchasing something else can still be beneficial," he added.
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Unemployment drives more US home sellers to cut price
* 1 in 4 U.S. home sellers cut price in July - Trulia
* Mortgage rates entice, but many borrowers unqualified
* Job loss, wage cuts, tight lending pressure pricing
* Aggressive pricing to compete with foreclosed properties
NEW YORK, Aug 11 (Reuters) - Owners cut prices on one-quarter of U.S. homes listed for sale in July, a fourth straight monthly rise, as job market fallout trumped record low mortgage rates, real estate website Trulia.com said on Wednesday.
Sellers in the 50 largest cities slashed $30.1 billion from prices on houses on the market as of Aug. 1, up from $27.3 billion in the prior month, San Francisco-based Trulia said in a report provided to Reuters before official release.
Unemployment near 10 percent, wage cuts, restrictive lending practices and home values that have fallen below their mortgage balances have left many potential buyers unable to take advantage of low rates.
"With one out of every four homes experiencing at least one price reduction, sellers are feeling no relief this summer in a market climate of fewer qualified buyers and widespread uncertainty about the job market," said Pete Flint, Trulia chief executive.
The average discount on homes reduced at least once held at 10 percent from the original asking price in July from June.
"If buyers are unqualified to buy, it doesn't matter how low interest rates are or how discounted a home is," Flint said in a statement, adding that the housing market will bounce around the bottom for months.
Unemployment remained at 9.5 percent in July but would have been higher if discouraged Americans had not dropped out of the workforce.
The housing market is still gaining equilibrium in the aftermath of up to $8,000 in buyer tax credits that ended on April 30. The credit forced sales into spring months at the expense of summer activity.
During the spring sales rush, sellers cut prices by much smaller amounts totaling $22.8 billion in March and $25 billion in April, according to Trulia.
U.S. 30-year mortgage rates averaged 4.56 percent in July, according to home funding company Freddie Mac (FMCC.OB), and have since drifted to a record low under 4.50 percent.
Nonetheless, in half of the 50 largest cities, sellers last month lowered prices on at least 30 percent of the homes for sale. Foreclosures continue to weigh on prices.
The real estate market will keep languishing until the job market recovers, said Trulia's Tara Nelson.
"Sellers need to continue to be very aggressive with pricing to compete against all the low-priced short sales and foreclosures that they'll be on the market with, for a long time to come," she said.
Minneapolis led in price cuts for a fourth straight month, with 42 percent of listings lowered at least once. The average discount was 9 percent for a total of $33.8 million in reductions, Trulia said, citing rising inventory and mounting competition.
Las Vegas had the biggest spike in the share of sellers cutting prices at 18 percent, a 56 percent surge, while New Yorkers cut prices on 20 percent of the listings, a 15 percent jump in the month.
Cities in California were among those with the largest increases in the share of sellers slicing prices.
Price-cutting on luxury homes listed at $2 million or more had an average discount of 14 percent from the original listing price, Trulia said. Homes in this category account for less than 2 percent of total inventory, but almost one-quarter of the total dollars slashed from asking prices.
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