The housing recovery reinforced the belief that it is heavily dependent on low interest rates induced by the Federal Reserve, as mortgage applications declined for the second consecutive week.
According to the Mortgage Bankers Association’s latest report for the week ending May 17, loan application volume dropped 9.8 percent on a seasonally adjusted basis from one week earlier. This comes after a 7.3 percent decrease in the prior week. These figures include both refinancing and home purchase demand, and cover over 75 percent of all domestic retail residential mortgage applications.
The industry group’s Refinance Index plunged 12 percent. Earlier this month, the Refinance Index hit its highest level since December 2012. Meanwhile, the Purchase Index decreased 3 percent after recently reaching its highest level in about three years.
Overall, the refinance share of mortgage activity decreased to 74 percent of total applications, compared to 76 percent in previous weeks. The refinance share declined for ten straight weeks earlier this year, but hit its highest percentage in about three months earlier in May.
The average interest rate for a 30-year fixed-rate mortgage came in at 3.78 percent, up from 3.67 percent in the prior week. Mortgage rates are quickly approaching new highs. For example, the week ending March 15 posted the highest contract rate since August 2012 at 3.82 percent. The most recent average rate for a 15-year fixed-rate mortgage also increased from 2.88 percent to 2.96 percent.
“Mortgage rates increased to their highest level since March last week, leading to the largest single week drop in refinance applications this year,” said Mike Fratantoni, MBA’s Vice President of Research and Economics. “The refinance index has fallen almost 19 percent over the past two weeks and is back to its lowest level since late March. Purchase activity declined over the week but is still running about 10 percent above last year’s pace at this time.”
In morning trading, shares of home builders such as Toll Brothers (NYSE:TOL) surged more than 6 percent, while PulteGroup (NYSE:PHM) and Lennar (NYSE:LEN) both jumped nearly 2 percent. Despite reporting weaker-than-expected quarterly financial results, shares of Lowe’s (NYSE:L) gained 2 percent.
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