The Mortgage Bankers Association reported today that applications for home loans notched a solid increase last week for the second time in a row. The industry group's market composite index climbed by 5.5% compared to the previous seven-day period. This marks the fourth time in 10 weeks that the index has headed higher. At the present level, it's off its May high by 51.6%.
There's little question that higher mortgage rates are to blame for the overall downward trend. Since the first week of May, the average rate on a conforming 30-year fixed-rate mortgage has skyrocketed, going from 3.35% all the way up to 4.5% today. The magnitude and speed of the advance have been unprecedented.
Applications to refinance existing mortgages have been the hardest hit by the hike in rates. Three weeks ago, for instance, the MBA's refinance index dropped by a precipitous 20%, the biggest single-week decline of 2013.
With this in mind, last week's results, in which refinance applications were up 5%, came as a welcome relief. Nevertheless, they're still off their early May high by 63%. Over the same time period, moreover, they've gone from a 76% share of overall mortgage application activity down to a 61% share.
Applications to purchase a home haven't been hit as hard. The MBA's purchase index increased last week by 7%. But this gain aside, purchase-money mortgage applications remain down over the last four and a half months by 10%. Compared to the same month last year, they're up by 6%.
The impact of this has obviously begun to reverberate through the mortgage market. Earlier this week, Citigroup (NYSE: C ) announced that it will be laying off 1,000 employees "as a result of decreased demand for both mortgage originations and refinancing."
And this is only the latest such move. For instance, Wells Fargo (NYSE: WFC ) , the nation's largest mortgage originator, recently said that it's eliminating 2,300 positions in its mortgage department, JPMorgan Chase (NYSE: JPM ) acknowledged last week that it expects to lose money in its mortgage originations business in the latter half of the year, and Bank of America (NYSE: BAC ) is letting go of 2,100 employees for the same reasons.
All three of the latter banks also felt the impact on their balance sheets last quarter, notching declines in the accumulated comprehensive incomes of $3.4 billion, $3.4 billion, and $4.2 billion, respectively. The trend led the chief executive of a regional bank to proclaim earlier this month that rising interest rates are the "next really big risk" to the banking industry.
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