Rising interest rates appear to be taking their toll. The Mortgage Bankers Association reported this morning that its index of weekly mortgage application activity fell by 2.6% last week compared to the week before.
Given their sensitivity to higher mortgage rates, applications to refinance dropped by 4% and are now at their lowest level since July 2011. Over the last 10 weeks alone, the figure is down by 55%.
Alternatively, purchase-money applications were actually up last week on a seasonally adjusted basis by 1%. On a non-seasonally adjusted basis, they were up by 26% compared to the prior week, and by 5% compared to the same week last year.
The latter results add credibility to the hypothesis that rising mortgage rates may paradoxically end up being good for the housing market. I discussed that here, and we've recently seen convincing evidence of this in the earnings reports from some of the nation's largest banks.
At the end of last week, Wells Fargo (NYSE: WFC ) reported that its purchase-money mortgage originations shot up in the second quarter by 46% compared to the first quarter, while JPMorgan Chase's (NYSE: JPM ) were higher by 44%. Earlier today, meanwhile, Bank of America (NYSE: BAC ) said that its first-lien mortgage production was up by 40% compared to the same quarter last year.
If this trend is reflective of the underlying market dynamics, then it's hard to deny that rising mortgage rates, within reason, might end up being a net positive for the housing market in particular, and the economy more generally.
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