US Mortgage Applications Report Shows Rates Continue to Rise

The weekly release of the MBA Mortgage Applications report posted a decline of 7.2% in the week ended June 5. The fall marks the third consecutive fall in mortgage activity though at a narrower pace than the previous two double digit percentage declines. Specifically applications for homes purchased have risen 1.1% from 4.3% in the previous week, the third consecutive gain. Meanwhile, refinancing continues to drop for the third time at an 11.8% rate compared to the previous week. The divergence in the two measures that make up the index is chiefly the result of rising rates that have kept refinancing down while new loans remain higher as the overall rate remains historically lower than average. The 30-year fixed-rate mortgage climbed to 5.57% from 5.25%, while the 15-year rate also rose to 5.10% from 4.81%. Also of note, the one year ARM shot up significantly to a more than one-year high of 6.75%. Soaring rates could hamper a quick recovery to the US housing market and are showing that the Federal Reserve’s efforts may have been in vain as market forces take control. Looking ahead, further weakness would lead to slower housing construction, house price declines, and higher delinquency/foreclosures as consumers are not able to save money through refinancing measures.