Is This Housing Indicator Flashing a Warning Signal?

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Mortgage applications continued their downward spiral as interest rates climb higher and doubts remain about the strength of the housing market. In the latest update from the Mortgage Bankers Association, for the week ended March 21, applications for home loans fell 3.5 percent on a seasonally adjusted basis from one week earlier. On an unadjusted basis, the index decreased 3 percent.

There has been a steady slide in mortgage applications over the past nine months as the housing market returns to a more sustainable pace. As the chart above shows, applications are near their worst level in years. The Refinance Index plunged 8 percent from the previous week. The Purchase Index managed to increase 3 percent, but on an unadjusted basis, the index was still 17 percent below year-ago levels.

Overall, the refinance share of mortgage activity accounted for 54 percent of total applications, the lowest share since April 2010 and down from 57 percent a week earlier. In fact, the refinance share of mortgage activity has now dropped for seven consecutive weeks. Conventional and government refinance applications led the contraction.

The average interest rate for a 30-year fixed-rate mortgage increased to 4.56 percent, the highest level in about two months. Meanwhile, the average rate for a 15-year fixed-rate mortgage rose to 3.62 percent from 3.52 percent. Although mortgage rates are still near historic lows, the housing recovery story will likely draw more skepticism this year as higher prices ignite affordability issues.

According to the latest reading on S&P Case-Shiller Home Price Indices, property values in the twenty largest U.S. metropolitan regions jumped 13.2 percent year-over-year in January. The western region of the country led the gains, with property values increasing 24.9 percent year-over-year in Las Vegas and 23.1 percent in San Francisco. Cleveland posted the smallest gain, with prices climbing just 4 percent. Dallas and Denver are now less than 1 percent away from their recent all-time index highs.

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