The Mortgage Bankers Association reported today that applications for home loans fell last week for the second time in five weeks. The industry group's market composite index headed lower by 7% compared to the previous seven-day period. This marks the fourth time in 10 weeks that the index has decreased. At the present level, it's off its May high by 52%.


While higher mortgage rates are responsible for the overall downward trend, the recent reversal in borrowing costs has caused prospective homeowners and people interested in refinancing existing mortgages to return to the market for home loans.

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 4.57% in September. Over the last few weeks, however, the rate has dropped back down to 4.1%. The recent correction aside, the magnitude and speed of the advance have been unprecedented and is widely credited with slowing down the markets for both new and existing homes.

Applications to refinance existing mortgages have been the hardest hit by the hike in rates. Two months ago, 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 down by 8%, is disappointing but not calamitous.

Despite last week's uptick, refinance volumes are off their early May high by 59%. And over the same time period, they've gone from a 76% share of overall mortgage application activity down to a 66% share.

Applications to purchase a home haven't been hit as hard. The MBA's purchase index fell last week by 5%, though purchase-money mortgage applications remain down over the last five months by a comparatively reasonable 22%. Compared to the same month last year, they're down by 2.8%.

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