MBA: Mortgage Application Volume Plummeted 11.7% Last Week

Who said rising interest rates won't slow the housing recovery?

The Mortgage Bankers Association's (MBA) Weekly Mortgage Applications Survey for the week ending June 28 shows that mortgage application volume decreased 11.7%, seasonally adjusted, from the week prior.

On an unadjusted basis, application volume decreased 12% compared with the previous week.

There was also a sharp drop-off in refinancing. The Refinance Index decreased 16% from the previous week to reach its lowest level since July 2011.

The decrease in application volume follows a spike in mortgage interest rates that began after the Federal Reserve's June 19 announcement that it would begin tapering its bond-buying program starting in the fourth quarter, providing the economy shows signs of improvement.

Rates on fixed 30-year mortgages surged 12 basis points to average 4.58% in the week ending June 28, the MBA said.

‘At these rates, many fewer homeowners have an incentive to refinance,’ said Mike Fratantoni, vice president of research and economics for the MBA, in a statement. ‘Purchase application volume also declined but not nearly to the same extent, as affordability remains strong.’

Still, rates are far lower than they were prior to the economic crisis. As such, some economists have said that the recent rise in rates won't be enough to derail the housing recovery.

In a recent report on CNBC's ‘Squawk Box,’ Ara Hovnanian, CEO of home builder Hovnanian Enterprises, said although rates are now trending above 4.4%, they could continue to rise without severely impacting housing starts.

‘I think they could go up, as long as it doesn't go up in a shocking way,’ Hovnanian said on the program. ‘If it goes up steadily and in small increments, which I think is a likely scenario, I'm not very concerned.’

Hovnanian pointed out that after the 1981-82 housing downturn, mortgage rates were 13.4% on average, yet there were roughly 1.7 million housing starts in 1983.

Although the rise in rates seemed to be forcing potential buyers off the fence in early June, it now appears that many are taking a ‘wait and see’ approach. Loan requests for home purchases decreased 3.1%, seasonally adjusted, last week, according to the MBA's survey.

In addition, the refinance share of total mortgage activity sank to 64% of applications from 67% the week before.

The adjustable-rate mortgage share of activity increased to 8% of total applications, its highest level since July 2008, the MBA said.

The HARP share of refinance applications increased to 34% from 30% the week prior.


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