The rout in the mortgage market continues.
Since the Federal Reserve intimated at the end of May that it could soon begin to reduce its support for the economy, mortgage rates have shot through the roof. On Friday alone, the interest rate on a 30-year fixed-rate mortgage increased by the largest single-day margin in history, climbing to 4.875% in some instances.
The result has been predictable. That is, the demand for mortgages has plummeted. According to the Mortgage Bankers Association, mortgage applications fell for the fourth consecutive time last week. They are now at their lowest level since July 2011.
The hardest hit have been applications to refinance, which are down by 26% over the last four weeks. Purchase-money mortgage volumes, by comparison, are off by only 6.9%.
While it remains to be seen what impact this will have on stocks, and bank stocks in particular, we won't have to wait long to find out. This Friday, the nation's two largest mortgage originators, Wells Fargo (NYSE: WFC ) and JPMorgan Chase (NYSE: JPM ) , report earnings for the second quarter. In the first three months of this year, they underwrote a combined $162 billion in mortgages, the vast majority of which were for refinancing purposes as opposed to buying a home.
The other sector that stands to be affected is homebuilders, the two largest of which are D.R. Horton (NYSE: DHI ) and PulteGroup (NYSE: PHM ) -- click here for a graphic of the five biggest homebuilders in America. Both of these companies have seen volumes pick up as of late. However, there's fear that rising mortgage rates could put a damper on that growth.
One bank stock that's likely to survive and thrive in this market is identified in our recent free report: "The Stock Buffett Wishes He Could Buy." The free report details why Warren Buffett is heavily invested in banks right now, and exactly why he can't buy one of the most attractive companies in that sector. Click here to keep reading.